San Diego got a B+ from Lynn Reaser at her Mid-Year Economic Report Card presented at the University Club Friday. Reaser is the chief economist at the Fermanian Business and Economic Institute at Point Loma Nazarene University and her annual update on the state of the economy is always eagerly anticipated.
Reaser gave San Diego high marks because we are matching the state in terms of growth, with the tech industries being a major contributor. Unemployment locally is down to about six percent – another positive.
On the down side, Reaser said business confidence is still missing in San Diego. Business owners frequently complain about over-regulation, but Reaser said that when she probes for details they aren’t specific. Could be a good topic for a survey.
Another worry Reaser cited was the fact that healthcare providers in San Diego, a big driver for the local economy, say they are losing money on every Medicaid and Medicare patient, and that’s not a sustainable business model. She said Obamacare did a great job of providing coverage for more individuals and families, but it hasn’t dealt with the cost issue effectively.
Home prices in San Diego are now rising at a slower rate and Reaser said the gradual increase is more sustainable. She expects home prices to reach their 2005 high in two to three years.
Reaser gave the state economy a B+ as well and she said California is outperforming the rest of the nation with new or expanding companies providing job growth. But she cautioned that California needs to deal with some long term budget issues.
What does the future hold? In spite of the slow pace of recovery, Reaser was generally upbeat and said the economy just needs time to heal. But she did identify several issues that could be a concern. Monetary policy was designed to increase risk taking by businesses, but that’s only occurred in the financial sector and has contributed to income inequality. The situation in Iraq could impact oil prices, and whenever oil prices go up it always hurts the economy. She also warned that interest rates could go up fast if banks get a hint the fed is making a move. But Social Security and Medicare are the two big “budget killers” she was most concerned about for the longer term. For Social Security she said the solution is relatively simple: people just need to work longer. Medicare, on the other hand, “is a tough nut to crack.”