CMC’s Lowe Institute researches the economic conditions of the Inland Empire. Last fall, the Lowe conducted research on why the unemployment is so high and how to fight it. According to Claremont McKenna Economics Professor Marc Weidenmier, director of the Lowe Institute, the Inland Empire lost 195,000 jobs since December 2007. While the rest of the nation staves off climbing unemployment rates, the counties of Riverside and San Bernardino continue to lose jobs with unemployment rising 3% after the National Bureau of Economic Research declared the recession over.
Unemployment rates vary from city to city throughout the region, but few are in the single digits. Rancho Cucamonga is faring better than the rest of its Inland Empire compatriots with an unemployment rate of 9.4 percent. This rate is low when compared to the cities of Ontario, which has 15.1% unemployment, and San Bernardino, which has an extremely high unemployment rate is 18.9 %.
Why is the Inland Empire faring so poorly overall? The crash and spiraling descent of the region can be traced to intense economic growth starting at the beginning of the 1990s and ending in December 2007. The Lowe Institute’s findings show that during this period the Inland Empire grew by 84%, adding approximately 584,000 new jobs, when the rest of the country grew by only 26%. This rapid growth was connected to expansion in the Greater Los Angeles area and the boom in the housing market. Places like Rancho Cucamonga developed into what is now the unmistakable American, suburban sprawl of the late 1990s and early 2000s. People who worked in the Inland Empire and commuters to LA and Orange County moved in, spurring the growth in residential investment.
The robust and sustained growth of the Inland Empire created a boom in the local economy and housing market. This was then followed by a devastating bust. Fontana and Silverdale are now littered with abandoned housing tracts, and homes all over the Inland Empire are up for sale. The Inland Empire, heavily dependent on the housing market, experienced some of the worst fallout from the recently burst real estate bubble. Weidenmier emphasized this reliance the region by saying, “The Inland Empire is the Detroit of housing. Detroit produces cars; the Inland Empire builds houses. The difference is Detroit got a capital injection from the government; the Inland Empire did not.”
Claremont McKenna Professor of Economics Manfred Keil studies why certain parts of the Inland Empire are experiencing lower unemployment than others. Keil is currently researching and developing gravity models for the Inland Empire Outlook that will use economic analysis to explain the varying economic conditions within the region. Gravity models are used to determine what effects neighboring economic centers have on trade and the commuting labor force. Keil thinks that cities and communities geographically close to L.A., Orange, and San Diego Counties have lower unemployment rates because residents in these bordering areas commute into adjacent counties. If bordering counties improve economically they might help pull the Inland Empire toward recovery.
The Inland Empire is also heavily dependent on U.S. imports through the Port of Los Angeles. If you drive through Ontario, you can see the hundreds of warehouses storing inventory awaiting cross-country transport. Many of these warehouses are now empty. Professor Weidenmier remarks, “Imports got hammered by 50% during the recession. Logistics are beginning to come back but I see no substantial improvements coming for the next 4 to 5 years.”
The Lowe Institute predicts that the Inland Empire will have a difficult time lowering its unemployment rate below double-digit figures. The Lowe’s research led Weidenmier to conclude that the unemployment rate will not return to pre-recession levels in the near future and definitely not in the next 5 years. The Lowe Institute diagnosed the problem with the Inland Empire’s economic recovery, stating, “The three major categories of investment (residential, plant and equipment, and inventory) are all stagnant.” It stated residential investment in the region is and will be severely limited by the collapse of the housing market.
Consumer spending is anemic and credit markets are still frosty. Businesses are lucky if banks lend anything to them. So for firms and small businesses, investment in new equipment will not be in the budget for the next couple of years. With low levels of imports, the warehouse sector of the Inland Empire, Ontario in particular, is failing to support economic growth. The Lowe Institute believes that foreign investment and exports will help fight the severe unemployment in the region.
Foreign investors are already starting to move into the Inland Empire; a British grocery and merchandising retailer Tesco opened ‘Fresh and Easy’ grocery stores in San Bernardino, LA, Riverside, and Orange County. The Lowe Institute found in a report from UC Berkeley that Japanese companies are talking with Riverside and San Bernardino counties about investments in solar and wind energy.
The Inland Empire has the 24th highest amount of export-supported jobs in the country. Manufacturing of auto and plane parts constitutes a large portion of the exports. Higher Chinese demand for oranges, grapes, and other produce could increase exports within the agricultural sector as well. Exports will remain a viable source of economic aid so long as the U.S. dollar remains weak, making domestic goods cheap relative to foreign goods, and demand for Californian goods stays strong in East Asia, Mexico, and Canada.
What does 15% unemployment look like? What does a foreclosed home look like? What does a region devastated by the Great Recession look like? Certainly not like Claremont. Businesses in Ontario have boarded up their windows, housing tracts in Rancho Cucamonga have halted construction, warehouses in Ontario are low on inventory, and auto shops in Montclair lay vacant, recognizable only by the faint remnants of the monikers that once proudly displayed their name. Vacant lots and broken warehouses line Holt Boulevard, a street only 3 miles from campus.
While Athenaeum talks come to a close and TNC’s dwindle into the early hours of the morning, people only blocks away from us wonder how they’ll pay their next bills and put food on the table. We constantly hear about the depressed economy in the news. When you get a chance, take a drive to the other side of Claremont Boulevard, and witness its effects on our own backyard.