LAEDC’s Dr. Steven Banks: What’s Driving LA’s Economy?

By Dennis Kaiser

The Los Angeles Economic Development Corporation (LAEDC) recently appointed veteran economist Dr. Steven Banks as its new Chief Economist. In his role, Dr. Banks brings a wealth of experience in economic forecasting, and will focus on the key industries driving LA’s economy.

Hear from Dr. Banks when he joins Chris Thornberg of Beacon Economics and Richard Green of the USC Lusk Center for Real Estate on a special economics forecast presentation. Here’s a preview of what that conversation will cover at Connect Los Angeles coming up on March 27 in DTLA.

Q: What are the biggest trends and economic forces driving Los Angeles markets today?

A: The biggest economic trends we see in LA County in our 2018-19 Economic Forecast are: a) the unemployment rate will continue to decline, from a high of 12.5% in 2010, to 4.4% in 2018 and 4.1% next year; b) moderate job growth is expected in LA County with an average annual change in employment from 2017 to 2018 of 1.1% and a forecasted net gain of approximately 47,800 nonfarm payroll jobs in 2018; c) real GDP growth for LA County is projected to be 2.4% this year, and 2.2% in 2019; d) biggest jobs gains will be in construction, administrative and support services and healthcare/social assistance, with manufacturing being the only sector where we project job losses.

Q: What are some of the key policy or political winds that those in Los Angeles real estate should have their ears attuned to and why?

A: Clearly, affordability, particularly residential affordability, remains one of the overriding factors. While the median home sales price in the U.S. was around $336,000 (December 2017), in LA County it was almost $561,000. On an index scale, if the U.S. rank is 55, the LA County index comes in at 30, and the Bay Area (SF-SJ) was 23. On the rental side, median rents in L.A. are currently $2,245/month, with 36.2% of income spent on housing (2017) vs. a U.S. average of $1,480/month, with 32.9% going to housing. In addition, rapid construction in the high-rise apartment and condominium markets could also lay the foundation for a housing bubble. In essence, once all of these new units are completed, is there sufficient demand to fill the vacancies?

Q: What do you see ahead as far as Los Angeles’ key growth opportunities or challenges?

A: One of the key issues is how to make the L.A. labor force more “job ready.” In this regard, we need to adopt policy measures to ensure that people that are entering the L.A. labor force possess the skills that employers are looking for. At the moment, we are in something of a state of “labor disequilibrium” in that the skills employees have are not necessarily those that employers are looking for. Given all of the public and private four-year universities, junior and community colleges, and vocational and technical schools that are located in L.A., ensuring curriculums that give students the skills they need to find work is essential. Another issue is retaining the jobs that we already have in L.A.  According to the Economic Freedom of North America report, California ranks as the second worst state in the Union for “economic freedom,” behind New York. This is based on tax structures, regulatory environment, labor market restrictions etc. In the last seven years, the state’s lack of freedom is estimated to have forced over 10,000 businesses to cease, reduce or relocate operations in California. L.A. has been particularly hard hit as a result. FYI, New Hampshire ranked #1 on the list.

For comments, questions or concerns, please contact Dennis Kaiser