Inland Empire Business Activity Index
Quarter 2 | 2019
The Inland Empire Business Activity Index tracks performance of the Inland Empire regional economy on a quarterly basis and is adjusted for seasonal variations. The composite indicator is estimated using a wide range of economic data including employment, economic output, income, real estate, and other indicators at the national, state, and metropolitan level.
Business activity in the Inland Empire picked up during the second quarter of 2019, increasing at a 2.5% annualized rate. This marks an acceleration over the sluggish 0.8% gain the region saw in the first quarter. Growth in the Inland Empire’s business activity also surpassed growth nationally. U.S. Gross Domestic Product (GDP) advanced by 2.1% in the second quarter of this year according to initial estimates from the U.S. Bureau of Economic Analysis. However, in year-over-year terms, from the second quarter of 2018 through the second quarter of 2019, business activity in the region grew by 1.8%, outpaced by U.S. GDP, which grew by 2.3%.
What Are the Inland Empire’s Competitive Industries?
Although This quarter’s In Focus examines the factors that contribute to the Inland Empire’s employment growth. To do this, the Center for Economic Forecasting uses the shift-share technique, which is based on the assumption that local economic growth can be explained by the combined effect of three components: national share, national industry mix, and regional shift (all defined below). This method allows for a better understanding of how an industry’s performance can be attributed to unique regional factors in a given area—in this case, the Inland Empire. This analysis uses recently released data from the U.S. Bureau of Economic Analysis’ Quarterly Census of Employment and Wages, 2013 to 2018.
The table below shows how the inland Empire’s industries have performed over the course of the last five years, ending in 2018. The National Share column measures how much total employment in a given industry in the Inland Empire increased due to growth in the national economy. For example, had the Inland Empire’s Transportation and Warehousing industry grown at the same rate as the national economy overall, regional employment in that industry would be roughly 76,420 jobs. The Industry Mix column identifies fast or slow growing industries in the Inland Empire based on the national growth rates for those industries minus the National Share. In other words, Industry Mix illustrates how much growth in a given regional industry is explained by growth in that industry at the national level. Finally, the Regional Shift (or competitive effect) column measures local industry employment that is attributable to local characteristics and trends. The Regional Shift is the most important and telling metric in this analysis because it identifies the Inland Empire’s leading and lagging industries as compared to the nation—a key measure of performance.
This methodological technique reveals how overall national job trends, industry-specific job trends, and regional employment patterns contribute to total industry employment at the regional level. For example, total employment in Transportation and Warehousing in the Inland Empire was 123,893 in 2018, of which 7,112 positions (or 13%) were attributed to the nation’s employment trends, 8,533 positions (or 15.6 %) were attributed to employment trends within the industry at the national level, and 38,942 positions (or 71.3%) were due to local patterns and trends in employment.
The large share of employment attributed to local trends (Regional Shift) demonstrates the competitive advantage the Inland Empire has over other areas in the Transportation and Warehousing industry. The industry has performed fairly well at the national level, due in part to a rise in e-commerce, but an abundance of lower-cost and developable land, which the Inland Empire has and which is critical to this industry, has helped its local employment base expand more robustly.
Extending this analysis to the subsectors within the Transportation and Warehousing industry (see table below) reveals a more granular breakdown, and illustrates the lagging and leading areas within the industry. Perhaps unsurprisingly, Warehousing and Storage is out in front, followed by Truck Transportation.
At the other extreme, Finance and Insurance was the Inland Empire’s weakest industry in terms of the Regional Shift (competitive effect). Had this industry followed the national employment trend, there would have been nearly 4,500 more Finance and Insurance jobs in the Inland Empire in 2018.
The Center For Forecasting’s short-term outlook for business activity in the Inland Empire remains modest, with gains expected throughout the second half of 2019. Over the year, business activity in the region is forecast to rise between 2.3% and 2.6%. There has been quite a bit of alarming media coverage about the potential impact of a trade war but, currently at least, the hype is greater than the reality. While there will be some effects, the Center for Forecasting does not see the trade turbulence at its current level to be a threat to the broader economic expansion.