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Economic forecast calls for more sunshine in SLO 

But continued growth for county expected at a slower rate

Bill Watkins, director of the UCSB Economic Forecast Project, brought another dose of healthy optimism to local business leaders and government officials last week. The annual economic outlook event brings Watkins to Cal Poly’s Performing Arts Center, where he shares his team’s research and economic predictions.

During this year’s speech, Watkins amused the crowd by naming sections of his lecture after pop culture references like Bob Dylan’s “The Times, They Are A-Changin’.� One power point slide said, “It’s A Party,� and had a picture of the Beatles’ Abbey Road album cover. It’s all part of Watkins’ drive to present complex concepts in a coherent and easy-to-understand format.

The first San Luis Obispo Economic Outlook occurred in 1992, and since then the forecasting project has been amassing economic data for businesspeople and local governments.

For the most part, the economic future of the county is bright. “ California has been doing better then expected,� said Watkins. “High home prices, an intractable budget deficit, high costs of doing business, uncertain electricity supplies, little infrastructure investment, high insurance costs … the list of reasons not to do business in California is long … yet California continues to exceed our expectations.�

In San Luis Obispo, home prices continue to rise, unemployment is low, new homes are being built, and the rate of the county’s gross product continues to grow.

The one possibly negative aspect that Watkins and his team brought up was what they call an increasing “bi-model� population, which is a growing split in the population’s demographic. “[It] consist[s] of a large number of relatively wealthy people and a large number of relatively poor people,� as defined in the executive summary of the economic forecast. “It is increasingly clear that this is San Luis Obispo County’s future: The results of high home prices, demographics, and migrations. This future will challenge the county’s institutions and citizens.�

According to Watkins, this aspect has also driven the unemployment rate down in SLO County to 4 percent; lower then the national average of 5.3 percent and the state average of 5.6. In his speech, Watkins explained the low unemployment rate, saying, “If you don’t have a job, you better get out of here because you can’t afford to live here.�

The growing “bi-model population� is also going to affect schools, said Watkins. Expect more school closures in the future because there simply will not be children to fill the schools, he said. Businesses will also have a harder time recruiting entry-level workers, the report states.

“ San Luis Obispo is becoming, as is much of California, a land of haves and have-nots,� says the forecast report.

This trend may be more intense in coastal areas of California, where houses are purchased as secondary homes, driving home prices up. Watkins said this is because Coastal California is not a “local market�; it attracts outsiders who want vacation and retirement homes. For SLO County, most of these buyers come from San Francisco and Los Angeles. This also means there are relatively few first-time homebuyers in SLO County.

The demand for housing in California is driven by fundamental factors that will not go away soon,� the report states. “The key factors include rapidly rising net wealth … demographics, interest rates, tax policy, and in coastal areas, a quality of life that buyers are willing to pay for.�

But overall, “As Coastal California counties go, San Luis Obispo is still relatively affordable,� states the report.

“There are signs that the [housing] market is cooling off,� said Watkins during his speech. But he doesn’t expect the bubble to burst. “We are sometimes considered optimistic because we don’t think home prices are in a bubble; we have been consistently low in our forecasts of home prices.�

In 2005, the median home price in SLO County reached $538,000; much higher then the national average of $193,000 and the state average of $524,000. Watkins and his team have consistently and accurately predicted a growth in the median home price cost. They forecast the median home cost to continue to rise.

Despite increased oil prices, fiscal effects of recent hurricanes, and the global war on terror, Watkins expects the California economy to grow in 2006, just not as quickly as it did in 2005. “ San Luis Obispo’s economy is strongly impacted by California’s economy. So, we expect continued economic growth, but a slightly reduced rate.�

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