Local Economy Still Exceeds State, National Growth Rates

Homes are still selling at double-digit appreciation rates. Travelers still crowd the terminals at Palm Springs International Airport. Neighborhoods and commercial centers are still sprouting at a brisk pace as the Coachella Valley's population continues to surge.  

None of this is happening at the rate it did back in 2004 or early 2005. But the valley by most measures continues to experience healthy economic growth, staying ahead of California as a whole and many parts of the United States, according to Chapman University economist Esmael Adibi. 

"The economy in the Coachella Valley is still expanding and creating jobs," said Adibi, who regularly tracks economic trends for The Desert Sun's monthly Business Review. He also will be presenting Chapman's annual Coachella Valley Economic Forecast today in Rancho Mirage.  

"But the rate of growth is not what you were seeing a couple of years ago."  

Home builder Mario J. Gonzales, president of GHA Companies in Cathedral City, said, "It's no secret that things have slowed down a little for everybody generally.  

"But the market is still out there."  

For the first quarter of 2006, economists at Orange-based Chapman University give the valley a projected economic index rating of 119.1. Any number above 100 means the valley economy is expanding and creating new jobs.  

The quarterly index, devised by Chapman economists and editors at The Desert Sun, measures the vitality of the valley economy by tracking growth rates in such key areas as construction spending, hotel occupancy, median home prices and local airport traffic.  

Tracking year-over-year growth in each of those segments, local experts note that things aren't expanding at the rate they were during 2004 or the first half of 2005.  

At its peak, in 2004's fourth quarter, the valley's economic index was 144. That was the culmination of 10 consecutive quarterly increases in the index.
Since then, the index has seen five consecutive quarterly declines.  

Nonetheless, valley numbers have consistently tracked ahead of the state as a whole. Chapman economists put California's latest growth index at 113.1, a full six points behind the valley's.  

Here's a look at how various sectors of the valley economy performed in 2005, and what's ahead for 2006:  

Construction and home sales 

When it comes to construction growth and home sales, the valley is now witnessing a very mixed scenario.  

New construction has leveled off on the residential side (though commercial building remains brisk), and home sales are generally in a "soft landing" mode compared with the frenzy days of early 2004.  

Unsold housing inventory continues to grow and homes new and old are taking longer. But home prices remain the strongest component of the valley economy, still appreciating at double-digit rates.  

In the fourth quarter, year-over-year appreciation came in at 20.4 percent, not that far off from the 29.1 percent in 2004's fourth quarter - though well off the peak 33.5 percent of 2004's second quarter.  

Rising prices helped builders see business rise in dollar terms from 2004 to 2005, even as unit sales counts dropped or stayed flat for many companies.  

"We were actually up around 35 percent in sales in 2005 compared to 2004," Gonzales said.  

Builders remain bullish on the valley market for 2006 and beyond, with the valley's population rising by more than 50 per day and with continued demand for second and vacation homes among aging baby boomers.  

"They're not going to want to retire in Wisconsin," said Gonzales "They'll want to go to California."  

"The (valley) market still looks healthy in the long term," said Tony Scimia, a senior vice president in the San Bernardino office of Century Vintage Homes. It has about 1,500 new valley homes in the pipeline for the coming year, in places like Indio, Palm Springs and Desert Hot Springs.  

Barring an unforeseen jolt to the U.S. economy or a sudden jump in interest rates, experts say the valley should continue to capitalize on strengths relative to other California communities - home and land prices here remain relatively low.  

But more builders entering the market could cause crowding and diminishing returns.  

"There are just more builders out here," said Mickie Riley, president of Rilington Communities in Cathedral City. "The absorption rates are still high, but we're sharing the market with more people."  

The overall pace of new building appears to be taking a breather in the valley. While building permit valuations - a measure of construction starts - were increasing at an annual rate of 39.5 percent in 2004's fourth quarter, the figure for 2005's fourth quarter was 1.9 percent.  

Adibi said that factor is currently the biggest contributor to the valley's growth slowdown.  

Hotel occupancy 

Though the decline has been slight, hotel occupancy has been the only valley economic indicator showing declines for the past three quarters. In 2005's final quarter, occupancy was down 1.4 percent from a year ago.  

Aftab Dada, general manager of the Hilton Palm Springs Resort, said one explanation could be a decline in leisure travel, as some consumers have responded to jitters about the national economy.  

"The consumer is a little more cautious right now because of higher prices for a lot of things, like gas and electricity," he said.  

However, the larger hotels in Palm Springs are seeing brisk business in group bookings. Dada said a contributing factor - and a reason for optimism in 2006 - is the recent opening of an expanded and renovated Palm Springs Convention Center.  

For all of 2005, Palm Springs bookings attributable to convention business totaled 46,000 room nights.  

"Already for 2006, we have 66,000 room nights on the (reservation) books." Dada said.  

He added domestic destinations like the valley remain relatively good bargains for travelers, thanks in large part to the U.S. dollar's weakness in foreign markets.  

Airport traffic 

Traffic at Palm Springs International Airport grew 1.8 percent year over year in the fourth quarter of 2005, down from 10.6 percent growth in 2004's fourth quarter.  

Still, airport spokesman Bryant Francis said the airport continues to set monthly traffic records, thanks in large part to a growing local full-time population.  

Airlines like Allegiant and United have recently been adding new year-round flights, and Francis said officials are in talks to add even more flights.  

For instance, officials are discussing with American Airlines the possibility of adding more local flights to Dallas/Fort Worth. It is also seeking more flights from Alaska Airlines between Palm Springs and Seattle.  

Airport officials project the facility in 2006 will hit another annual record, surpassing 1.5 million travelers before the year is out.