Jobs Rebounding but Recovery Remains Distant

The month of May brought some good news for the Inland Empire's labor markets—total nonfarm employment increased by 700 jobs, and the region's unemployment rate edged down to 14.7% from 15% in April. Scratching the surface of these numbers provides some important insights on the near-term employment outlook. The unemployment rate can go down for two reasons: unemployed residents become discouraged, drop out of the labor force, and are no longer counted among the unemployed causing the rate to fall; or more residents move from unemployed to employed status. In May, the unemployment rate dropped because the number of Inland Empire residents classified as unemployed fell by more than 5,600. This indicates that local labor markets have hit bottom and will begin rising. However, we expect growth to be slow. We are currently forecasting that the unemployment rate has reached its peak and will continue falling throughout the remainder of 2010. Unemployment will remain above 11% through the first half of 2012, and won't fall into the single digits until late 2013. Nonfarm employment is expected to continue growing despite the fact that many federal government jobs, temporarily added to conduct the 2010 Census, will soon disappear. Similar to the fall in unemployment, the growth in employment will be slow. We are forecasting that total employment in the Inland Empire will hover around 1.1 million in 2010, and won't recover to its pre-recession peak until 2015.

Housing Market Emerges in Better Shape

The Inland Empire's housing market took one of the worst beatings in all of California. The region set records during the bubble with median home prices jumping by 227% ($120,000 in 2000 to $394,000 in the first quarter of 2007). Unfortunately, the region also set records on the way down: home prices plunged by 61%. Despite the pain caused by the massive bubble, the Inland Empire's housing market is emerging from the meltdown healthier. Home prices during the bubble were completely unsupported by income levels in the region. The median home price went from its historical norm of 6-times per capita income to more than 14-times per capita income in 2006. Since the bubble collapsed, prices are beginning to make sense again, falling to their historical norm. Also, during the bubble, prices rose faster in the Inland Empire than elsewhere in Southern California—eroding the relative affordability that drew people to the region in the first place. Now that prices have fallen faster in the Inland Empire than in neighboring regions, relative affordability has increased and should attract new residents. We are forecasting that home prices will see slow growth over the next year as policy interventions wear off and the labor markets struggle to heal themselves. However, as the region picks up steam and population growth increases in 2012 and 2013, we expect home prices to begin growing at a healthier pace—though we don't foresee a return to peak prices in the next five years.