Editorials

Recovery is S-L-O-W in SLO

Editor’s note

Today, we begin a series of guest perspectives that look ahead at the challenges and the opportunities that San Luis Obispo County will face in 2010.

We asked local experts to weigh in on a variety of areas — including government, the economy, the environment, social services and education — and to offer some advice, along with their forecasts.

Today, economist Brad Kemp gives us some predictions for real estate, jobs and tourism.

On Wednesday, Rick London of United Way of San Luis Obispo County will write about what the future holds for the many nonprofit organizations serving our communities.

There are changes in store for the San Luis Obispo County economy in 2010. Exactly what those changes are is tough to predict. However, one thing we can say with certainty is that, for a number of reasons, economic recovery in the region is going to be slow. Here is an overview of the up-and-down trends we expect to see in the county over the next year.

The hurt, the help of tourism

San Luis Obispo County is very dependent on tourist dollars, and because of this was dragged into the recession much earlier than the rest of the state. The county felt the sting of consumer cutbacks earlier and more intensely than most areas. Despite an increase in hotel occupancy in 2009 over 2008, the revenue per available room is down from nearly $111 to just over $107. Still, over the past year, tourism in the county did see a return to growth. Moreover, because consumers will continue to seek out affordable local vacations, we expect both consumer spending and hotel occupancy in the county to increase throughout 2010.

Nothing to wine about

Driving much of San Luis Obispo’s tourism is its world famous wineries. And the lure is clearly durable. According to leaders within the region’s wine industry, the number of people walking into their tasting rooms has not declined throughout the recession. However, the number of bottles purchased and the prices paid for them have taken a hit. But as consumer spending increases, demand will rise slowly over the next year and conditions for the industry will improve. Ultimately, the industry will continue to gain strength, adding to the region’s economic resurgence and long-term vitality.

Commercial and residential real estate markets

San Luis Obispo County did not wade knee-deep into sub-prime and Alt-A lending practices as did places such as the Inland Empire and Central Valley. As a result, its real estate markets have fared better. Nevertheless, the state’s housing bubble crash was catastrophic, and local markets will continue to face challenges and, in the case of commercial, grow worse before improving.

The northern area of the county, around Paso Robles, expanded residential and commercial inventories considerably during the housing bubble, and it will take some time for that stock to be absorbed. On the residential side, this will have a stabilizing effect on prices and will keep them where they are now. But on the commercial side, it will lead to significant price decreases.

While we haven’t yet seen commercial price drops (due to very few transactions), the many investors who bought commercial properties at the peak of the market and are now sitting on seriously underperforming assets will be forced to clear them from their portfolios. We expect the number of commercial transactions to rise in 2010, and price decreases will be inevitable.

Jobs on the not-too-far horizon

The employment situation in San Luis Obispo County will improve in 2010.

We believe the unemployment rate is currently near, or at, its peak. This past fall, Beacon Economics predicted that the unemployment rate in San Luis Obispo County would peak at 9.3 percent in the fourth quarter of 2009 (current quarter).

At the time of this publishing, the new seasonally adjusted rate for November was 9.5 percent and was unchanged from the rate reported in October. Thus we expect the rate to turn around soon. The important point is that the unemployment rate should gradually fall throughout 2010 as jobs slowly return.

San Luis Obispo County’s economy is on the mend. But recuperation will take time. In addition to practicing healthier eating habits, a wise New Year’s resolution for 2010 may be to practice patience.

Brad Kemp is director of regional research at Beacon Economics, an independent economic research and consulting firm with offices in Northern and Southern California.

Find out more at www.beaconecon.com.

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