ECONOMIC SNAPSHOT. A Summary of the San Diego Regional Economy UNEMPLOYMENT

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1 A Summary of the San Diego Regional Economy Brought to you by San Diego Regional EDC analyzes key economic metrics that are important to understanding the regional economy and San Diego s standing relative to other major metropolitan areas in the U.S. This issue covers data from the October 2014 to January 2015 quarter. Highlights San Diego County s January 2015 unemployment rate was down 1.1 percentage points from January San Diego had the 11th highest employment growth rate from January 2014 to January The region added 40,400 jobs since last January, with 36,700 of those jobs coming from the private sector. San Diego s average annual wage grew faster than the U.S. average from 2010 to The industrial vacancy rate of 6.4 percent in Q was the lowest ever recorded for the San Diego region. San Diego s median home price dropped back below $500,000 in Q4. The biotech industry continues to be a bright spot in an otherwise lackluster year for VC investment. UNEMPLOYMENT San Diego metro ranked 13th in unemployment rate in January 2015, down five spots from last quarter (October 2014). San Diego s 5.8 percent rate is below the U.S. rate of 6.1 percent. The year-over-year decline in unemployment remains a positive trend in the region. The rate fell by 1.1 percentage points, the 10th most among major metros. San Diego has continued to fare better than other California metros and the state in terms of the unemployment rate. San Diego maintained a lower unemployment rate than Riverside and Los Angeles metros, as well as the state average. Unemployment Rate: 25 Most Populous U.S. Metros JAN-15 JAN-14 PP CHANGE 1 Minneapolis San Antonio Dallas Denver Houston San Francisco Washington DC Boston Miami Seattle Charlotte Tampa San Diego Phoenix Pittsburgh Saint Louis Philadelphia Portland US Atlanta Baltimore New York Chicago Riverside Los Angeles Detroit Unemployment Rate: California Comparison San Diego recorded the 13th lowest unemployment rate in January Source: Bureau of Labor Statistics Seasonally Unadjusted PP = Percentage Point Source: Bureau of Labor Statistics

2 EMPLOYMENT San Diego Regional EDC PAGE 2 San Diego experienced a seasonal decline in employment in the October to January quarter. Nearly all sectors experienced decline in employment over the quarter, with a significant exception in the professional, scientific and technical services sector, which added 3,200 jobs. Though the quarterly decline can largely be explained by seasonal effects, annual growth shows the region s economy picking up significant steam. San Diego recorded the 11th highest growth rate from January 2014 to January The region s employment grew by more than three percent, compared to the U.S. average growth rate was only 2.3 percent. While San Diego s overall growth is very positive, we continued to see more explosive growth in one of the region s most important sectors. Professional, scientific and technical services (PST) is a sector of the economy very heavily associated with the region s innovation clusters. Much of the companies and employment in clusters like biotechnology, biomedical products, cleantech and information technology fall within the PST sector. Employment in the region s PST sector grew by 6.6 percent since last January. Other key industries in the region experienced above average year-over-year growth. The construction sector continued to boom, adding 4,200 jobs or 6.8 percent growth. The region s health care industry added another 6,000 jobs and grew by 3.9 percent. Leisure and hospitality, the industry most closely associated with tourism, added 8,600 jobs over the year and grew by 5.2 percent. Total Employment Growth: 25 Most Populous U.S. Metros % CHANGE YEAR JAN 14 - JAN 15 % CHANGE QTR OCT 14 - JAN 15 1 Dallas 4.43% -0.26% 2 Atlanta 4.30% -0.33% 3 Riverside 4.18% 0.32% 4 Denver 3.93% -0.90% 5 Miami 3.83% 0.81% 6 San Francisco 3.80% -0.57% 7 Houston 3.75% -0.71% 8 San Antonio 3.44% -0.78% 9 Seattle 3.32% -0.57% 10 Charlotte 3.20% -1.12% 11 San Diego 3.07% -0.45% 12 Phoenix 2.94% -0.12% 13 Portland 2.91% -0.96% 14 Tampa 2.78% -0.43% 15 Los Angeles 2.65% -0.50% 16 Detroit 2.45% -1.43% - US 2.32% -1.66% 17 New York 2.02% -2.10% 18 Boston 1.94% -2.02% 19 Philadelphia 1.69% -1.74% 20 Minneapolis 1.67% -2.39% 21 Baltimore 1.62% -2.44% 22 Chicago 1.55% -2.61% 23 Washington DC 1.52% -1.33% 24 Saint Louis 0.92% -3.03% 25 Pittsburgh 0.88% -2.79% Source: Bureau of Labor Statistics Ranked by % Change Year Employment by Industry (in thousands) INDUSTRY JAN-15 OCT-14 JAN-14 CHANGE PREV. QTR CHANGE PREV. YR %CHANGE PREV. QTR %CHANGE PREV. YR Total (Private and Government) % 3.1% Total Private % 3.4% Professional and Business Services* % 5.0% Prof., Scientific, & Tech. Services* % 6.6% Mgmt. of Companies & Enterprises % -3.2% Administrative % 4.8% Trade, Transportation, and Utilities % 0.2% Wholesale Trade % 1.6% Retail Trade % -0.4% Transportation and Utilities % 1.1% Education and Health Services % 3.8% Education Services % 3.4% Health Care and Social Assistance % 3.9% Leisure and Hospitality* % 5.2% Manufacturing* % 1.0% Financial Activities % 0.9% Finance and Insurance % -0.7% Real Estate and Rental and Leasing % 3.3% Construction % 6.8% Other Services % 6.4% Information* % 1.6% Mining and Logging % 0.0% Government % 1.6% Federal Government % -1.1% State Government % 4.8% Local Government % 1.5% Construction employment grew by 6.8 percent since last January. Source: California Employment Development Department Italics = Supersector Ordered by largest Supersectors *Denotes industry sectors strongly associated with San Diego s Traded Economies

3 San Diego Regional EDC PAGE 3 SPOTLIGHT ON JOB GROWTH AND WAGES It has been well-documented in previous economic snapshots and other EDC releases that the San Diego regional economy has been growing steadily since the recession. Moreover, it s been stressed that job growth has occurred in our traded sectors and other high-wage industries. In theory, job growth in high-wage and traded industries results in the greatest impact, since this enables more money to be circulated in the local economy through the spending of increased wages. This increased local spending increases jobs in other local industries like food service, personal services, and health care, among many others. In this issue, we will test whether or not the region s job growth was in fact concentrated in highwage sectors. We will also look at how the region s wages grew over time and in which industries. Between 2010 and 2014, the region added 73,666 net jobs, which is about a 6.9 percent change in employment over that period. Figure 2 reveals whether or not those added jobs were in high-wage sectors, and the picture is rather unclear. The trend line shows that there is little-to-no relationship between wages and jobs added by industry. This isn t necessarily negative, since we should expect stratification throughout the economy, and not everyone is equipped with the skills to work in high-wage sectors. If grouped as illustrated in Figure 1, highwage sectors accounted for 26 percent of job growth, middle-wage 57 percent, and low wage 17 percent. More than half of those middle-wage jobs added were in health care. Professional, scientific and technical services (PST) added the second most jobs and pays nearly double the average wage. LOW MIDDLE HIGH Figure 1: Average Annual Wage by Industry (Q1 2014) Utilities $146,340 Finance/Insurance $116,844 PST Services $112,152 Information $96,852 Manufacturing $87,084 MGMT of Companies $85,044 Wholesale Trade $80,256 Mining, etc. $72,276 Public Administration $65,796 Average $60,384 Real Estate/Leasing $58,008 Construction $56,196 Educational Services $51,588 Health Care $51,036 Transp./Warehousing $45,228 Admin/Waste MGMT $43,068 Arts/Enter./Rec. $37,320 Retail Trade $33,168 Agriculture/Fishing $31,116 Other Services $30,960 Accommod./Food $22,884 The average annual wage in San Diego grew by 20.8 percent from 2010 to 2014, compared to the national rate of 16.3 percent over that period. Figure 3 shows whether the net jobs added went to industries with above average growing wages. PST services is again a bright spot, The industry accounted for 19.3 percent of job growth while wages grew by 35 percent. Health care accounted for more than a third of the job growth, but wages only grew at 5.1 percent over Indicators that period. Other services lost 11,080 jobs, while wages grew by 27.9 percent. This is likely due to a reclassification of certain jobs by the Census Bureau, and probably an anomaly. Figure 4 reveals an imperfect but visible relationship between wage growth and average annual wage. This is a trend that has been widely discussed both locally and nationally. The chart shows that San Diego s most stagnant industries for wage growth already pay the lowest wages, while the bulk of the wage growth has occurred in already high-wage industries. It is certainly a good sign that the region s high-wage industries oftentimes our economic drivers are experiencing accelerated wage growth. However, the lower-wage, mostly service-oriented industries have yet to experience significant growth, which widens the wage gap in the region. It would be imprudent to speculate and draw too many conclusions from this brief analysis. However, it s at least clear that the vast majority of the jobs added since 2010 were in middle-tohigh paying industries. The high-paying and high-growth manufacturing and PST industries in particular proved to be bright spots for the region. These two industries are most associated with San Diego s innovation economy. Health care jobs accounted for a substantial amount of middlewage job growth, but unfortunately wages are growing slower than expected. Some concern remains over the distribution of wage growth in the economy, but it is possible industries with slow wage growth are lagging, and will catch up as the economy continues to recover. Figure 2: Net Jobs Added ( ) in SD County by Average Annual Wage and Industry Figure 3: %Net Jobs Added ( ) in SD County by %Change in Average Annual Wage and Industry Health Care Figure 4: %Wage Growth ( ) in SD County by Average Annual Wage and Industry Health Care MFG MFG Other Services PST PST

4 REAL ESTATE San Diego Regional EDC PAGE 4 FORECLOSURES San Diego s foreclosure rate remained much lower than the U.S. average in January 2015, with only 1.88 out of every 10,000 homes foreclosing during that month. The region had the fourth lowest foreclosure rate in January. The region s foreclosure rate continues to consistently drop, though this pace is slower compared to U.S. average and some other metros with far higher rates. Foreclosure Rate: 25 Most Populous U.S. Metros RATE JAN 15 POINT CHANGE PREV. QUARTER POINT CHANGE PREV. YEAR 1 New York Denver San Francisco San Diego Los Angeles Pittsburgh Philadelphia Phoenix Minneapolis U.S Dallas Washington Riverside Charlotte Seattle Portland Baltimore Source: Zillow Note: Rate is per 10,000 homes, Nine major metros not reported San Diego s median home price dropped back below $500,000 in Q4. OFFICE & INDUSTRIAL SNAPSHOT The region s office market in Q4 saw the highest quarterly absorption on record, with tenants absorbing more than 840,000 square feet. According to Cassidy Turley, this was largely a result of the booming economy, most notably in the professional and business services sector, which is the largest tenant-group of office space holders. The industrial market in San Diego continued to flourish as well. According to Cassidy Turley, the county-wide vacancy rate has reached an all-time low of 6.4 percent, due to the region s growing economy, particularly in the manufacturing and wholesale sectors. Q was also the 14th straight quarter of positive net absorption in the industrial market. Over that period, tenants have absorbed a combined 8.3 million square feet. HOME PRICES San Diego remained the second most expensive for-sale home market in the U.S., according to National Association of Realtors. Home prices decreased by about 4.8 percent in the San Diego region from the previous quarter and increased about 3.4 percent from the previous year. The annual growth rate was slower than most, ranking 16th among major metros. The quarterly decline was experienced by nearly all metro areas, with Riverside and Tampa as exceptions. Median Home Price: 25 Most Populous U.S. Metros PRICE % CHANGE FROM % CHANGE FROM 2014 Q4 PREV. QUARTER PREV. YEAR 1 San Francisco $742, % 10.1% 2 San Diego $493, % 3.4% 3 Los Angeles $450, % 6.5% 4 New York $390, % 1.0% 5 Boston $383, % 3.2% 6 Washington DC $372, % 1.3% 7 Seattle $352, % 2.2% 8 Denver $314, % 12.7% 9 Portland $288, % 8.0% 10 Riverside $277, % 5.3% 11 Miami $265, % 1.9% 12 Baltimore $233, % -3.5% 13 Philadelphia $213, % -0.5% 14 Minneapolis $210, % 6.5% - US $208, % 6.0% 15 Phoenix $200, % 3.9% 16 Houston $199, % 9.3% 17 Chicago $195, % 4.3% 18 Charlotte $192, % 11.8% 19 Dallas $189, % 9.0% 20 San Antonio $185, % 8.0% 21 Tampa $160, % 4.9% 22 Atlanta $157, % 10.7% 23 Saint Louis $138, % 6.2% Source: National Association of Realtors Note: Pittsburgh and Detroit not available The industrial vacancy rate of 6.4 percent in Q was the lowest ever recorded for the San Diego region. Real Estate Snapshot: San Diego County (Q4 2014) AREA/SUB-REGION OFFICE VACANCY RATE ABSORPTION (SF) AVERAGE ASKING RENT INDUSTRIAL VACANCY RATE ABSORPTION (SF) AVERAGE ASKING RENT San Diego County 16.0% 846,283 $ % 1,099,020 $0.81 North County 18.7% 68,441 $ % 347,625 $0.75 Central County 15.5% 717,071 $ % 417,819 $1.00 South County 15.6% 60,771 $ % 333,576 $0.53 Source: Cassidy Turley Market Report Note: Monthly asking rates converted to triple net (NNN). Vacancy Rate includes direct and sublease. Net absorption excludes sublease. Green indicates lower vacancy or higher rents than the previous quarter, or positive absorption.

5 San Diego Regional EDC VENTURE CAPITAL In Q4 2014, the San Diego region ranked 14th out of the 18 U.S. regions tracked by the PricewaterhouseCoopers MoneyTree Report in terms of VC dollars received by regional companies. Total VC dollars were down from last quarter and from last year. San Diego received about $140 million less in Q than the same quarter the previous year. Data from Q4 indicates that VC investment did not continue to rebound in 2014 as expected. The region was on pace to reach roughly $1 billion for year 2014, but after a slow Q4, the region reached only $805 million, the second lowest since Year 2013 was lowest, with only $733 million. The biotech industry continues to be a bright spot in an otherwise lackluster year for VC investment. PAGE 5 San Diego Venture Capital Funding by Industry (Q Q4 2014) INDUSTRY Q Q Total Biotechnology $39,472,200 $91,892,100 $494,460,700 Computers and Peripherals $0 $0 $4,510,000 Consumer Products and Services $21,122,000 $0 $42,622,100 Electronics/Instrumentation $0 $0 $2,000,000 Financial Services $0 $1,375,000 $1,400,000 Healthcare Services $0 $2,171,000 $0 Industrial/Energy $2,276,000 $35,200,000 $3,076,000 IT Services $0 $1,250,000 $9,263,000 Media and Entertainment $3,099,800 $2,650,000 $17,585,800 Medical Devices and Equipment $3,942,000 $3,280,000 $48,084,000 Networking and Equipment $0 $0 $13,612,000 Retailing/Distribution $0 $0 $3,110,000 Semiconductors $4,286,100 $0 $57,598,000 Software $32,466,000 $7,685,000 $107,756,000 Total $106,664,100 $145,503,100 $805,077,600 Only 19 deals were made in Q4 2014, the lowest since Biotechnology companies were involved in only six VC deals in Q4, the least since Despite the under-performing quarter, the biotech industry had an otherwise decent year. Biotech firms received nearly a half billion dollars in deals throughout 2014, which is better than 2013 and closer to a typical year for the industry. While the software industry had a decent Q4, it remains a concern that the industry appears to be receiving less dollars over time. The $107 million received in 2014 is the lowest since From 2007 to 2013, San Diego received an average of $168 million per year in software funding. The top three deals this quarter accounted for more than half of all funding activity in Q4. BioNano Genomics, a later stage diagnostics company received more than $21 million. Suja Life LLC, an early stage cold pressed juice company also received more than $21 million. DB Networks, a software firm that develops database security equipment received $17 million in expansion funds. Source: PricewaterhouseCoopers MoneyTree Report Note: Only industries with funding in San Diego shown 2014 Total reflects total from Q Q San Diego Venture Capital Funding by Stage (Q Q4 2014) STAGE Q Q Total Startup/Seed $0 $15,000,100 $18,135,000 Early Stage $41,567,900 $58,533,000 $393,991,100 Expansion $26,870,000 $3,980,000 $124,833,200 Later Stage $38,226,200 $67,990,000 $268,118,300 Total $106,664,100 $145,503,100 $805,077,600 Source: PricewaterhouseCoopers MoneyTree Report Note: Only stages with funding in San Diego shown 2014 Total reflects total from Q Q VC figures are typically revised quarter-to-quarter as new data comes in, so it is possible that Q4 numbers will be better after the revision. However, revisions are rarely dramatic enough to change the narrative written above. Therefore, 2014 was better than a sluggish 2013, but short of a true rebound. The Quarterly Snapshot series is brought to you by EDC economic research is made possible with support from Bridgepoint, Qualcomm and Union Bank For more information, please contact: Michael Combs Research Manager mpc@sandiegobusiness.org sandiegobusiness.org San Diego Regional EDC s mission is to maximize the region s economic prosperity and global competitiveness.