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Recovery to Keep Rolling in 2015

A recurring theme at the San Diego Business Journal’s 2015 Economic Trends Event centered on a refreshingly direct result of expanding national and regional economies — hiring and keeping the region’s abundance of top talent.

“It’s going to be more and more challenging to hire the talent you need, but also to retain the talent you have,” said Brett Good, senior district president of Robert Half International.

Good and five other industry experts who participated in a panel discussion held Jan. 8 at the Paradise Point Resort & Spa weighed in on what they foresee for 2015, with all six agreeing things will improve over 2014.

“I see the U.S. economy firing on four-and-a-half cylinders out of six,” said Eugenio Aleman, a senior economist at Wells Fargo & Co.

Of a deflationary trend that’s now evident in some European economies, Aleman doesn’t see that occurring here and said the inflation rate, excluding gas and food prices, should remain around zero.

As to when the Federal Reserve hikes its benchmark, short-term borrowing rate, Aleman was circumspect, saying that decision “will be tricky.”

Full Employment

Unemployment, both nationally and regionally, will continue to decrease to where there’s essentially full employment, Aleman said. Last month’s jobless rate, both nationally and in San Diego, was 5.8 percent; most economists view 5 percent as practically “full employment.”

For those with financial and technical skills, opportunities abound, Good said, adding that those without skills will continue having a hard time competing.

One sector certain to expand and provide added jobs is health care. In San Diego, the industry is a key economic driver, accounting for about 100,000 workers and contributing some $9.3 billion to the area’s gross domestic product, said Jane Finley, a senior vice president of Kaiser Permanente.

Health care costs won’t level off this year. At Kaiser, premiums increased 3 percent last year, which is faster than both the inflation rate and workers’ wages, Finley said.

Due to provisions in the Affordable Care Act that kick in this year, more employers could be hit with penalties. “If you have more than 100 full-time equivalent employees, and are not providing coverage to 70 percent of them, then you may be subject to a penalty,” she said.

Trindle Reeves, a principal at Barney & Barney LLC, also talked about rising premiums on casualty insurance, but only for about 30 percent of employers in this region. Fifty-eight percent won’t see any change, while 12 percent will see their premiums rise.

“It depends on the industry that you’re in, but we’re seeing larger employers and name-brand companies getting more of a reduction than smaller ones,” Reeves said.

Ignoring the Cyber Danger

Reeves noted a general lack of awareness about cyber attacks that are happening at all sorts of companies, not just major corporations like Target and Sony Corp.

“A lot of companies have their head in the sand,” she said. Even given all the news about hacking, after being offered the chance to purchase coverage, most companies are declining it, she said.

On the commercial real estate side, Tom van Betten, a managing director for DTZ, said leasing is going to cost companies more this year. The most recent office vacancy rate for San Diego was 13.4 percent, with a cycle clearly in an upturn mode, and well past recovery. The cycle is characterized by greater demand, higher rents, and some new construction.

The building here won’t resemble anything extant pre-recession, when some 10 million square feet of office space came online from 2004 to 2008, and will be far costlier to construct so expect to see rents climb by an average of 3 percent this year, van Betten said.

One new spec building in University Towne Center being built by the Irvine Co. is asking for $4 per square foot, about the same as another new building in Del Mar Heights, he noted.

But those swankier spaces may be worth it since most workers, especially millennials, prefer toiling in nicer surroundings, and they’re a growing presence in the workplace, he said.

In San Diego, the segment born from the early 1980s to early 2000s, now make up about 30 percent of the workforce, but by 2030, they’ll be 75 percent, Good said.

The rap is that many of the kids don’t work as hard as the older generation, and tend to move quicker. “The challenge is how do we work with them to make them more productive,” Good said.

Bye Bye Baby Boomers

The ongoing impact from an average of 10,000 Boomers retiring every day will cause changes, he noted. “You’re going to have a massive brain drain and talent drain in the workplace,” Good said.

Combine the retirement trend with an improved economy and you have a prescription for more workers seeking out greener pastures, Good said. It’ll be challenging to companies in how they deal with those departures, he said.

One constant that isn’t going away is taxation, and given the Republican Party’s control of Congress, we could see a lowering of tax rates, especially for corporations, said Eric Rohner, a tax partner at Moss Adams LLP.

One proposal gaining traction is reducing the top corporate rate from 35 percent to 24 percent to 28 percent, which would improve these firms’ competiveness with other nations, and should result in more hiring, Rohner said.

“The whole idea is let’s lower the rates and broaden the base….to capture more of the potential base that we tax,” he said.

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