The weather is better than the economy. Photographer: Patrick T. Fallon/Bloomberg

Los Angeles Is a Drag

(Bloomberg Opinion) -- Among the nation’s 12 biggest metropolitan areas, it is metro Los Angeles — comprised of Los Angeles and Orange counties — that has seen the slowest job growth over the 12 months ending in July, according to the Bureau of Labor Statistics.

Los Angeles Is a Drag

As one can see from the above chart, job growth in California’s second biggest metropolitan area, San Francisco, also isn’t setting any records at 1.6 percent, which happens to be the national average. The state’s third most populous metropolitan area, San Diego, posted job growth of 1.5 percent.

You might think this is evidence that California’s remarkable economic recovery from the Great Recession and the not-all-that-great expansion that preceded it is finally sputtering. You might be right, eventually. But for the moment, the rest of the state is picking up the slack.

Los Angeles Is a Drag

Statewide, job growth was 2 percent in the 12 months ending in July. Where are these jobs being created? Here are the four large (more than 100,000 in payroll employment) California metropolitan areas with the fastest job growth.

Los Angeles Is a Drag

The San Jose metro area, home of the heart of Silicon Valley, has been outgrowing the rest of the state throughout this recovery. Its continued strong growth despite having the most expensive housing in the country (median single-family home price: $1.4 million) is remarkable. Beyond that, what seems to be happening in California is mainly that expensive coastal areas are leaking jobs to cheaper inland regions — but that overall the state economy is still growing at a reasonably healthy pace.

Another thing that stands out, though, is what an economic laggard metropolitan Los Angeles has been. Job growth hasn’t just slowed down there over the past couple of years, as has happened in the San Francisco area after strong growth from 2012 through 2016. It’s been slow along the Southern California coast for most of this recovery. A city and a region once identified with economic growth and dynamism have become kind of … “anemic,” to quote the Los Angeles County Economic Development Corporation’s Institute for Applied Economics.

Why is that? Well, here are the job numbers going back to 1990 for four signature Los Angeles area industries: computer and electronics manufacturing; finance and insurance; information, which is mostly the movie and television business; and transportation equipment manufacturing, which is mostly aerospace.

Los Angeles Is a Drag

It’s hard to grow very fast when some of your most important, highest-paying industries are behaving like that. The Los Angeles area has been adding lots of jobs in health care, and in leisure and hospitality, but those generally don’t pay as well or have the same kind of multiplier effects that the industries above do. As is clear from the above chart, this decline or stagnation of key industries is not a new thing for the area. In fact, and this kind of shocked me when I figured it out, the last full decade during which the Los Angeles metropolitan area added jobs at a faster pace than the nation as a whole was the 1970s.

Los Angeles Is a Drag

But hey, look: Job growth in the area has actually been a little bit stronger than in the rest of the country so far in the 2010s! Timing helps here: Metro Los Angeles suffered a deeper recession in 2008-2009 than the country as a whole, and its job growth over the full course of the business cycle is still below the national average. Still, it does seem significant that Los Angeles area job growth so far this decade is (1) back to pretty much the national norm and (2) faster than it’s been in any decade since the 1970s.

Los Angeles County has also seen its employment-population ratio, which peaked in 1989, well before it topped out in the rest of the country, return recently to the national norm.

Los Angeles Is a Drag

One key economic limitation that the Los Angeles area faces is that it’s full. That is, the amount of remaining developable land in Los Angeles and Orange counties is quite small, and while a lot of new apartment buildings have been going up in downtown Los Angeles and other already dense neighborhoods, squeezing new, denser housing into the sprawling housing tracts that cover most of the region has proved extremely difficult. The above chart seems to indicate that this wasn’t the main thing slowing the region down in the 1990s and 2000s — there weren’t enough jobs for the people already there. It conceivably is the main problem now, with Los Angeles currently ranking dead last for housing affordability among the country’s metropolitan areas, according to the National Association of Realtors. A typical Los Angeles area household “can barely afford to buy 4 percent of homes currently listed for sale.”

So maybe the real story here is that, after two awful decades, the Los Angeles area economy has finally begun to recover its footing. It just can’t find anyplace to put all the would-be workers.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”

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