UCR Professor Christopher Thornberg guest speaker
The Temecula Valley Chamber of Commerce in partnership with the UC Riverside School of Business Center for Economic Forecasting presented their annual forecast for Southwest Riverside County on Aug. 18th. City officials, business owners and educators focused their attention first on video presentations from each of the five City Managers touting the successes of each of their cities, and then listened to a University of California, Riverside economic forecaster predicting more prosperous years in southwest Riverside County. The Southwest County Association of Realtors and Loma Linda University Medical Center were Title Sponsors.
Christopher Thornberg, PhD, and director of the UC Riverside School of Business for Economic Forecasting and Development, was the keynote speaker for the large gathering at the South Coast Winery and Resort and Spa in Temecula. The event, called by the Southwest Riverside County Association of Realtors, provided a Southwest Regional Economic Forecast.
Thornberg saw the need for the continuing prosperity in the region as "Housing. Housing. Housing." with the secondary need to take measures to increase the labor force. He did warn, however, things will be changing in the next few years because of continuing inflation, supply chain problems and the "very false narrative" by much of the media headlines spelling recession and depression.
"That false narrative that continues to be there," Thornberg said, "is the most dangerous thing our economy is actually facing....Be aware of the narrative, you know."
He said he saw himself somewhat of a historian, but as an economist he pointed out that people should look at the world's history of booming and failing economies. He said there have always been ups and downs.
The Southwest County
He urged the audience to take a closer look at reality, particularly in the Inland Empire and southwest Riverside County.
With that in mind, Thornberg, using graphs and other visual aids, showed that since the end of COVID-19 everything in the area, from housing to jobs, has moved continuously upward, despite the record-breaking national inflation rate reaching almost 10%. The reason for the inflation rate record increases since COVID he suggested, was because more money has been pumped into the nation, mainly by the U.S. government.
He looked at the region that in reality reported a huge drop in the unemployment rate to just over 3.5% that has never been seen before, higher wages and a job market that is now screaming for more laborers, skilled and unskilled.
He saw the housing sales up to just the last month breaking records with record lower interest rates and more demand than supply.
With that housing demand on the rise, the cost however, is increasing in the area. He saw the trend very good for those who own their own home because of their increasing value, but not so good for those aspiring to buy a new home. He saw that trend coming because now, the Federal Reserve has the interest rate set at over 5%, when it was once just over 3.5% two years ago. "In Riverside County, it's only 3.6%," he said. "It has never been below 4% in the Inland Empire. Clearly, it is not a recession. This economy is operating at full capacity."
Inflation cooling off?
The Federal Reserve has reported that interest rate increases, they believe, will cool off the economy and decrease the inflation rate. Thornberg said the audience should look at why things are the way they are in the national economy. "It is overheating." He showed graphs supporting his hypothesis (UCR Center for Economic Forecasts) to show why the local economy is the way it is.
He said of the U.S. economy, "You don't treat it like a dirt bike' referring to it speeding up and slowing down. He saw there is still "too much pent up demand, too much wealth kicking around for this to be called a recession." He said public policy is basically not an economic reality.
Following that, he turned his attention to southwest Riverside County where new homes are still selling at almost record rates until just the last month, when there was a slight drop in sales.
He said of the area, "You're going to have good years because there is a lot of pent up demand... but there are not enough people to meet these demands. That is the problem we are facing right now. There is a problem out there much like it was in 2004 but it didn't reveal itself.
"The ultimate answer is very simple, don't jump into your bunker. It's way too early."
He said there are two major reasons: the economy is in really good shape but there is a demand problem, a supply problem."
He saw two courses of action for the local economy to keep growing like it is. He suggested that there needs to be more laborers to be hired to meet the demand and more housing, not necessarily single family homes but multi-family homes to attract more of those laborers with lower incomes. He pointed out the desperation that the local schools are facing with the need for more qualified teachers as part of that needed labor force as they are critical jobs.
Thornberg saw the housing market mainly sustaining the region's economy. "The most important thing out here is to keep the housing going," he said. He saw it as the upside to the local economy, but with it came a 30% increase in the cost of homes. At the same time, the rental market went up as well, but people are still renting because the new home prices for many are now out of reach with higher interest rates.
He noted these things show a demand problem exists, not a supply problem. He said the most critical problem now in southwest Riverside County is the lack of multifamily housing that is affordable for lower income families, families most in demand in the job market. "If you need more laborers here now, you need more multifamily" homes. With that statement he gained a loud applause showing the audience's agreement. He cautioned that bringing in more multi-family homes and increasing the labor force will take more water. "Water doesn't cost anymore than it did years ago."
With that he noted most of it is going to agriculture. But that industry is actually exporting more of its products out of the country than in the country. He spoke of Imperial Valley, where crops like hay are grown, only to send overseas to countries like Saudi Arabia and questioned growing "grass in the desert", when we may need the water to supply our local needs and future economic growth.
He further saw that inflation, even though dropping down slightly in the last month, will still be a problem in the future for the local economy. Even with that he encouraged people not to look at the narrative of a diminishing economy and actually look at where we are economically compared to 10, 20 or 30 years ago. "It may be weird," he said, but it's all in our heads."
Thornberg called attention to the trend pushing toward more politically partisan views instead of economic views, looking very critically at the recent Federal Reserve actions increasing the interest rates to record highs, fueling the negative politics that are "ignoring the data."
He concluded today's economy is the "inclusion of wealth we don't have." He encouraged all attending to continue to work to resolve today's economic problems that are not as bad as the narrative concludes.
The title sponsors to this year's Southwest Regional Economic Forecast are SRCAR and Loma Linda University. Breakfast sponsors are Abbott, CSUSM Temecula Campus, MSJC and Southern California Edison. Corporate sponsors are Temecula Wine Country and Pechanga Resort Casino. The Valley News was this year's media sponsor.
Tony Ault can be reached at [email protected].