Inland Empire Quarterly Business Activity Report
Quarter 4 | 2017
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.
INLAND EMPIRE BUSINESS ACTIVITY INDEX | Quarter 4 | 2017
Business activity in the Inland Empire maintained its upward trajectory, increasing at a 3.0% annualized rate during the fourth quarter of 2017, according to the Inland Empire Business Activity Index produced by the UC Riverside School of Business Center for Economic Forecasting and Development. On a year-over-year basis, Inland Empire business activity grew by 3.5% from the fourth quarter of 2016 to the fourth quarter of 2017, slightly faster than the growth rate for U.S. gross domestic product, where year-over-year growth now stands at 2.5%.
The Inland Empire’s estimated business activity in the third quarter of 2017 was 2.8% over the second quarter, for the second quarter in a row. The third quarter growth rate was also slightly above the growth rate for U.S. GDP in the third quarter, which came in at 2.6%, according to U.S. Bureau of Economic Analysis.
The Inland Empire closed out 2017 on a positive note, coming in as the fastest growing economy in California in terms of job growth. Total nonfarm employment in the region increased 3.0% in 2017, compared to 1.8% in the state as a whole. Moreover, employment in the Inland Empire continues to expand at a faster rate than in neighboring coastal communities.
Accompanying the job gains were increases in wages. The average wage rose 2.2% year over year in the Inland Empire during the second quarter of 2017, slightly below the state, which registered a 4.5% gain. Job and wage gains have increased the purchasing power of households, leading to a 5.1% increase in taxable sales in the region from the third quarter of 2016 to the third quarter of 2017. In turn, employment among consumer and household job sectors rose in recent months, with gains in Retail, Eating and Drinking Places, and Other Services (the Other Services sector includes a wide array of personal services ranging from hair salons to car repair shops).
Income growth has also fueled housing market activity. The median price of a home in the Inland Empire rose 9.0% to $340,000 between the fourth quarter of 2016 and the fourth quarter of 2017. Home sales have also advanced slightly, increasing by 0.5% over the same period. In addition, construction activity picked up with multi-family permits rising by 74%, and single-family permits rising by 22.3%. As a result, Construction employment experienced a remarkable 15% increase in December 2017 compared to one year earlier. In fact, the local Construction industry accounted for 30% of the Inland Empire’s total employment growth in 2017 and is by far the fastest growing sector in the region.
The Center’s overall outlook for business activity in the Inland Empire remains positive, but the prospect of labor shortages could impact future growth. Although the slower growth in the labor force will eventually constrain output, business activity in the Inland Empire is expected to see further gains through 2018, rising between 2.5% and 3.5%. This takes into account the newly signed Tax Cuts and Jobs Act, which is likely to increase investment and nominal spending by local businesses.