REAL ESTATE NEWS

LOCAL MANUFACTURING IS THE WEAK POINT THIS CYCLE

Published on Thursday, February 13, 2020

While the local economy is stronger this time around, there are still some weak points left over from the previous crash.

 

The local Orange County economy is healthier today than it was at the end of the last cycle, with more diversity in industry driving a healthy market, particularly for CRE companies. However, there are still some weak spots. Local manufacturing, for example, has not returned and continues to decline, leading to some transitioning in asset use and investment. But, slowing job growth and the political climate are also potential weak spots.

‘Local manufacturing employment has not returned to pre-recession levels. With that said, Orange County manufacturing employment numbers actually started to show signs of slowing in 2001,” Jared Dienstag, research manager at JLL, tells GlobeSt.com. “However, current manufacturing employment of 159,800 does reflect growth compared to the market low of 148,800 in 2010. The decline in manufacturing is a result of the economy transitioning to one that requires more warehousing and distribution due to the growth of ecommerce and last mile logistics.”

JLL recently published research comparing the 2007 to 2019 to better understand the differences between the two cycles. The comparison also raised questions about the end of the current cycle, but Dienstag isn’t expecting that to happen in 2020. “While we have learned there are no guarantees, economic indicators are not currently pointing to a recession in the near future,” he says. “GDP growth is positive, not too hot and not too cold. Jobs are being added, but at a slowing pace.”

Unemployment, for example, is 2.5% in Orange County today and was 4.2% in 2007, and 12-month job growth clocked in at 14,100 compared to negative 11,800 in 2007. All good news, but the slowed job growth Dienstag mentioned earlier is driven by a shortage of labor, which could put pressure on an otherwise healthy economy. As a result, Dienstag is keeping a close eye on the details. “This is not because of demand, but due to the fact that there are essentially more available jobs than people looking for work, so the labor shortage will be important to monitor,” he says.

In addition to jobs, the financial sector and political narrative could also play a role in the future strength of the economy. “Bank lending is constrained which can be limiting to people and businesses, however, it also helps protect financial institutions,” says Dienstag. “Of course, it will also be pertinent to watch the political climate as well.”