Labor Markets Leveling Off... But Recovery Will Be S-L-O-W

Los Angeles County's labor markets have begun to level off in recent months, but expect the road ahead to be a bumpy one. In February, the County's unemployment rate edged down from 12.5% to 12.4% on a seasonally adjusted basis. This happened in conjunction with gains in household employment, indicating that LA's residents are slowly getting back to work. As a result, we are currently forecasting that the County's unemployment rate will peak at 12.4% (quarterly average) in this first quarter of 2010 and then begin coming down - slowly. Slowly is the operative word: Beacon Economics is forecasting that unemployment in the County will remain above 10% through 2012. On the employment side, total nonfarm employment has grown slightly in the first two months of 2010, adding roughly 6,000 jobs since December of 2009. We will see nonfarm jobs expand in the first half of 2010, but Los Angeles will not reach its 2007 peak levels of employment for many years.

Sheepish on Housing?

Beacon Economics' forecast may appear bearish, given all of the 'good news' circulating about the economy recently: positive GDP growth, growth in consumer spending, and rising home prices. Unfortunately, it is clear that much of the rebound is a result of policy interventions and not improving economic fundamentals.

The rise in home prices, for example, has been aided in no small part by massive government intervention into the markets. A variety of policies and programs have artificially boosted the demand for homes, which has bid up the price of housing across the state. When these policies eventually expire, a good portion of the demand is likely to subside. Couple this with the mountain of unprocessed defaults and foreclosures sitting on banks' books, and the outlook for housing becomes more dubious. We currently expect home prices in Los Angeles to soften toward the end of this year and to remain flat through 2011 as the economy continues to heal and mortgage markets works through their remaining problems.