Economist Christopher Thornberg says San Diego’s overall economy remains on solid footing, but nationally the Federal Reserve needs to tighten the country’s money supply to avoid falling into a recession.
“People are out, enjoying their lives again (as the pandemic recedes) and San Diego’s economy is on fire,” Thornberg said Wednesday at a virtual economic forum hosted by Torrey Pines Bank. “The only major problem in San Diego is the problem – also facing California – of the lack of workers, driven by the lack of housing.”
Job vacancies are up but Thornbergfounding partner of Los Angeles-based Beacon Economics pointed to recent state employment statistics showing 29,300 fewer people working in the San Diego area in January compared to January 2020, just before the start of the pandemic.
“In all of these counties, whether you’re talking about San Diego County, Orange County or the Inland Empire, it’s always (the) leisure and hospitality (industry) that’s still struggling to come back” , said Thornberg.
Employment in San Diego’s recreation and hospitality sector is down 14,200 jobs.
When the economy reopened, Thornberg said, the sector intended to rehire the employees they laid off but “they’re not there.” Where did they go? Many moved into administrative support jobs, resulting in an increase of 10,600 jobs in San Diego.
Meanwhile, home prices in San Diego — already tight before the pandemic — have taken off, up 31.7% in the past 15 months, according to the National Association of Realtors and S&P Global. On Wednesday, the median price of a home in San Diego County hit a record high of $805,000, according to a CoreLogic/DQNews report.
“It’s an expensive market, but it’s also an incredibly tight market – we’re talking less than two months’ supply,” Thornberg said. “It’s not a market that’s going to break anytime in the near future, although I think it’s going to start to cool off as interest rates rise.”
US inflation hit its highest level in 41 years in March, 8.5% compared to the previous year, with gasoline and grocery prices weighing on consumers. In the San Diego metropolitan area, the inflation rate was slightly lower, at 7.9%.
In an attempt to curb inflation, the Federal Reserve in March rising interest rates for the first time in over three years. A recent Reuters poll of over 100 economists predicts the Fed will hike rates by half a point in May, then follow up with another half-point hike in June.
But instead of focusing on interest rate hikes, Thornberg said Fed governors needed to fight inflation by tightening the money supply following the federal government’s response to the financial effects of the pandemic. .
“According to my calculations, Americans lost approximately $820 billion in income during (the pandemic), for which the federal government returned $2.1 trillion to us, a ratio of 2.6 to 1,” said said Thornberg. “It’s absurd… We’ve done too much and now we’re inflating.”
Since the pandemic, the central bank has printed trillions through a process called quantitative easing, in which the Federal Reserve buys US Treasuries and mortgage-backed securities to signal to markets that it intends to maintain flexible financing conditions. The The Fed’s balance sheet soared to nearly $9 trillion.
Thornberg said it was time for quantitative tightening.
“Until they start pulling (about) $5 trillion in cash through quantitative money supply easing, inflation is only going to escalate,” he said. said, adding that he believed the longer the central bank waited, the greater the chances of a full-blown recession rising.
“Yes, (tightening) will drive up interest rates, it will burst the financial bubble,” Thornberg said. “It’s going to make us feel even worse right now, but ultimately it will help the economy in the long run.”
John Maguire, CEO of Torrey Pines Banksaid many of his clients are worried about inflation, but at the same time, financing for residential and commercial real estate transactions in San Diego continues to grow.
“You have industrial properties that are in high demand for the distribution of goods and services,” Maguire said, “And Amazon is a good example, but Amazon is not the only example there.”
Thornberg said California’s economic fundamentals are “fantastic” and “San Diego’s fundamentals are even better.”
“It’s an amazing place to live,” he said. “You have core industries – biotech, defence, tourism – all of which have a bright future ahead of them. San Diego locally is fine. The mess we’re in right now isn’t about San Diego…These problems start in DC”
Overall, the The International Monetary Fund released a report on Tuesday which lowered expectations of an improving global economy – predicting 3.6% growth in 2022 and 2023, compared to 6.1% growth in 2021.
The IMF blamed the more pessimistic outlook on “severe overlapping crises”, such as the Russian invasion of Ukraine that rocked energy markets, the lingering effects of the pandemic and inflation.