Inland Empire business activity rebounded in the most recent quarter, with increasing slack in the residential real estate market offset by growth in commercial development, UC Riverside economists said Thursday.
The UCR School of Business’ Center for Economic Forecasting & Development released its quarterly Inland Empire Business Activity Index, showing that the regional economy experienced a 2.8% annualized growth rate during the third quarter of 2022 — the most recent data available — a turnaround from the marginal 1.6% expansion in the second quarter.
The latest rate was comparable to the 2.9% increase in gross domestic product for the nation as a whole during the same quarter. GDP had been dropping over successive quarters, signaling the incipient stages of a recession, which some economists believe still looms.
Inflation remains at a 40-year high, and earlier this week, the Federal Open Market Committee announced another half-point hike in the Fed’s benchmark interest rate, pushing it to between 4.25% and 4.5% — a tier not seen in 15 years.
The UCR economic forecasting team did not theorize as to what the ultimate outcome of the hikes might be, or whether they’ll successfully dampen the inflationary cycle by soaking up excess liquidity, or “easy money.”
Despite the gains in regional growth, the third-quarter rate was still well below where business activity registered at the end of 2021, with an estimated 6.4% expansion.
“The Inland Empire has experienced a very steady economic recovery, outpacing coastal California along many key measures,” Center for Economic Forecasting Research Manager Taner Osman said. “While we are now seeing some weakness in the residential real estate market, that has been largely offset by impressive growth in employment, the labor force, consumer spending, building permits and commercial real estate.”
Home sales in Riverside County were down 42% year-over-year in October, while in San Bernardino County, they were down 48%. Prices were also lower, but generally less than 5% over the previous year.
The high cost of living in Southern California, exacerbated by accelerating inflation, is a deterrent to drawing workers to the region, unlike other parts of the country, the center said in its first-quarter report.
However, robust commercial real estate development points to ongoing confidence in job growth for the region.
According to the center, building permits for new office space ballooned almost 400% between the start of the year and the end of the third quarter.
“Moreover, many existing firms have opted to improve or expand their space, as illustrated by a 46% annual jump in non-residential alterations and additions,” according to the report.
Forecasters said earlier this year that the region had largely recovered the jobs lost during the coronavirus public health lockdowns of 2020 and part of 2021.
The latest Inland Empire Business Activity Index can be found here: ucreconomicforecast.org/wp-content/uploads/2022/12/UCR_BAI22_Design_Winter22.pdf