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INLAND SOLID EMPLOYMENT GAINS his issue of Inland Empire as an effective intermediary between local EMPIRE Outlook is the first in many to and statewide authority. document positive economic news Tfor the Inland Empire. In prior issues, we Finally, we analyze the two competing OUTLOOK have examined the region’s ongoing high proposals for a new professional football unemployment and struggle to emerge stadium in the Los Angeles area (p.18). from the recession. The most recent data The downtown site is vying with a Economic and Political Analysis show solid employment gains that outpace proposal locating the stadium in the City Volume III | Issue 1 | Spring 2012 the improvement statewide and even of Industry, significantly closer to the nationally. Inland Empire. INSIDE We begin with a close look at recent On May 15, 2012, the Inland Empire unemployment data (p.2). The Inland Center, in partnership with the UCLA The Inland Empire Strikes Back Empire unemployment rate was at 12.5 Anderson Forecast, will hold the third pg. 2-11 percent in January, 2012. While still high, CMC-UCLA Inland Empire Forecast this is an improvement of 1.2 percentage Conference at the Miramonte Resort & Councils of Government: Effective in the IE points over the previous eight months. Spa in Indian Wells. Jerry Nickelsburg pg. 12-17 California’s unemployment rate declined of UCLA Anderson Forecast will present by 1.0 percentage points and the national the state and national forecast and Will Professional Football Return to rate by 0.7 percentage points over the Professor Marc Weidenmier of CMC SoCal? same eight month period. will present the Inland Empire forecast. pg. 18-23 The conference will feature panels Coachella Valley: Municipal Revenue The improved unemployment data is on the elimination of redevelopment Uptick consistent with an uptick in municipal tax authorities, with an emphasis on the pg. 24-27 revenues seen in Coachella Valley cities tools that continue to be available (p.24). With consumer confidence on the to local governments for economic rise, Desert Hot Springs, Palm Desert, and development, and on election year politics Indio all expect their tourism and leisure and economics. Major sponsors of the CLAREMONT MCKENNA COLLEGE based economies to improve. conference include the Coachella Valley Claremont, California Economic Partnership and Rabobank. We also examine two of the Coachella INLANDEMPIREOUTLOOK.COM Valley’s councils of government: We at the CMC Inland Empire Center the Western Riverside Council of hope you find this edition of Inland INLANDEMPIRECENTER.COM Governments and the Coachella Valley Empire Outlook a useful guide. Please Association of Governments (p.12). visit our website, www.inlandempirecenter. Each agency is responsible for millions org, for updates to these stories and other of dollars’ worth of transportation and Inland Empire news. economic development projects and serves —The Editors Page 2 INLAND EMPIRE OUTLOOK | 2 The Inland Empire Strikes Back The Numbers n extraordinary economic development has recently occurred in the Inland Empire. Over the last eight months or so, the Inland Empire has seen larger employment growth compared to most other Metropolitan Statistical Areas (MSAs) in California, Aand its unemployment rate has finally shown significant declines. The Inland Empire unemployment rate stood at 12.5 percent in January 2012, having fallen by 1.4 percentage points over the last eight month period (and an impressive 2 percentage points from a year ago). This compares favorably to California as a whole, which saw a decline by 1.0 percentage points over the same eight month period, and the U.S., where unemployment rates decreased by 0.7 percentage points. Unemployment rates, in general, peaked much later in California than in the U.S. For the country as a whole, this economic indicator started to decline as early as October 2009 (even though the Great Recession officially ended in June 2009). The Inland Empire and California did not see a peak in unemployment rates until over a year later, in December 2010. Page 3 FIGURE 1: UNEMPLOYMENT RATES, UNITED STATES, CALIFORNIA, AND INLAND EMPIRE, 1990:1-2012:1 Figure 2 shows the development in unemployment relative to the Greater Los Angeles (Los Angeles and Orange County) area. The gap, which was as high as 3.0 percentage points in December 2010, now stands at 1.8 percentage points, and it is moving in a favorable direction for the Inland Empire. FIGURE 2: UNEMPLOYMENT RATES, GREATER LOS ANGELES AND INLAND EMPIRE, 1990:1-2012:11 INLANDEMPIREOUTLOOK.COM | 3 Page 4 INLAND EMPIRE OUTLOOK | 4 What accounts for this decline in the unemployment rate? Since the change in the unemployment rate is approximately equal to the difference in the employment growth rate and the labor force growth HAD THE INLAND EMPIRE rate, there is the nagging fear that the recent decline in the unemployment rate is simply the result of NOT SHOWN AN workers giving up their search for employment (“discouraged workers”). Given that the Great INCREASE IN ITS LABOR Recession of 2007-2009 has seen record numbers of long-term unemployment, this is a real possibility. FORCE, THEN THE DECLINE Furthermore, if the economic situation continues to improve and discouraged workers resume their search IN THE UNEMPLOYMENT RATE for work in large numbers, then unemployment rates will remain high for quite some time (note that WOULD HAVE BEEN EVEN employment in the U.S. increased by significantly less than 200,000 in March while the unemployment rate MORE DRAMATIC THAN fell to 8.2 percent because the labor force did not grow by as much). “WHAT WE OBSERVED IN THE FIGURES ABOVE. To analyze this question, we compare the decline in the unemployment rates across different geographic areas. Specifically we calculate the difference between the most recently available unemployment rates to the post Great Recession peak unemployment rate in the various locations. We did the same analysis last August finding the rather discouraging result that the labor force in all four areas (Inland Empire, Los Angeles, California, U.S.) had declined in varying degrees. The Inland Empire had seen the largest percentage decline in its labor force (1.4 percent points), while the labor force shrunk by 0.4 percentage points in the U.S., 0.7 percentage points in California, and 0.6 percentage points in Greater Los Angeles. However, only in California and in the Inland Empire had employment also declined over the same period. Note that the unemployment rate will fall if the decline in the labor force is greater than the employment decline. Still, this is not the picture of a healthy economy. In a strong recovery, employment and the labor force will grow together, with employment growth outpacing the labor force growth. Updating the analysis, however, shows a more positive picture for the Inland Empire. While the labor force shows an increase of 2.5 percent relative to the trough, employment growth was close to 5 percent. As a result, the Inland Empire’s unemployment rate fell by over 2.9 percentage points. In other words, had the Inland Empire not shown an increase in its labor force, the decline in the unemployment rate would have been even more dramatic than what we observed in the figures above. The other areas also show a decline in unemployment rates, but these are smaller. Page 5 FIGURE 3: PERCENTAGE DECREASE IN UNEMPLOYMENT RATES AND ITS COMPONENTS, INLAND EMPIRE, GREATER L.A., CALIFORNIA, AND THE U.S . Now that we have established that the decline in the Inland Empire’s unemployment rate is indeed caused primarily by growth in employment, it is useful to examine how the recent growth in (non-farm) employment compares to other regions in California. Figure 4 presents a sample of these for the period July 2011 to February 2012. Somewhat surprisingly, employment growth in the Inland Empire has outpaced gains in any most other geographical area with the exception of the Stockton MSA and San Jose MSA in California and even for the United States as a whole. FIGURE 4: EMPLOYMENT GAINS, JULY 2011-FEBRUARY 2012, U.S. AND VARIOUS CA MSA INLANDEMPIREOUTLOOK.COM | 5 Page 6 INLAND EMPIRE OUTLOOK | 6 This seems quite remarkable given that in past reports we have characterized the Inland Empire as one of the epicenters of the Great Recession, with unemployment rates in many of its cities reaching levels of 15 percent and above 20 percent for some. Stockton was similarly hard hit. Both areas finally see the long awaited improvement in the employment picture. Figure 5 shows the sectors which most heavily contributed to this growth in employment. Professional and Business Services employment has seen significant improvement since last summer but so have other sectors such as Leisure and Hospitality, and Trade, Transportation, and Utilities, which includes logistics. Even Manufacturing has contributed now to the job growth, while Construction, and financial activities continue to see declines in employment. Construction and manufacturing, two of the biggest beneficiaries of the previous expansion and the two sectors that have suffered most in the current recession, have seen their sectoral share decrease from 9.3 percent to 7.7 percent (manufacturing, a 1.5 percentage point drop) and 8.9 percent to 5.1 percent (construction, a 3.8 percentage point decline). However, it is hard to see further bloodletting in construction and manufacturing, given the already low levels of employment in both sectors. FIGURE 5: CONTRIBUTION OF EMPLOYMENT GROWTH BY SECTOR SINCE JULY 2011 Unfortunately, the dark cloud in the employment growth data is that an increase in government jobs accounts for a quarter of the total growth. Given the current budget picture, this cannot last much longer.

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