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Forecast for the Year 2000


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It's been called the greatest boom in history, and it certainly has felt like it. I belong to an investment club that made a 39 percent profit in 1999. And this is almost nothing compared to profits reaped by those who bought our local high-flyer, Qualcomm (we didn't), back when it was under $25 at the beginning of 1999. At the end of the year, it went to more than $650 before the split. No wonder so many people think San Diego is full of millionaires.

Is this typical? Most investors find their mutual funds up but expect no such startling results in 2000. Common wisdom is that more than 60 percent of New York Stock Exchange stocks dropped in 1999.

Then look at real estate. In 1999, homebuyers were standing in line to outbid each other. Experts tell us that might have slowed a little now. The average for a single-family home in San Diego County in 2000 is expected to be $290,000, up from last year's $270,000. A blip up in mortgage rates cooled the real estate market toward the end of '99. But the housing market will stay tight and the rental market even tighter, largely due to a shortage of supply. Says Alan Gin, University of San Diego analyst, "A slowdown in sales may not provide much relief to buyers in the low end of the market."

Nevertheless, experts are—once again— "cautiously optimistic" for the year 2000. "Modest" is a frequently used word. Nothing like last year, they say, but at least no recession. The job picture is definitely upbeat.

"It's hard to believe the unemployment rate can stay so low—2.7 percent in 1999, the lowest going back 40 years," says Kelly Cunningham, research director at the San Diego Chamber of Commerce. "Anything below 4 percent is respectable." Most experts say it might go to 3 percent in 2000 —but still.

"Some analysts looked for 25,000 new jobs in '99," says Gin, "and it turned out about 20,000. That's still a good number. I see about 15,000 new jobs in 2000—down in manufacturing and up in the service area. Because of the tight labor market, workers are in a good position."

They're right. Not bad numbers. Now if we can just hold the line.

The visitor industry in San Diego—our third largest, after manufacturing and the military—predicts modest growth. (That word "modest" again.) National gross domestic product for 2000 calls for a decline from peaks in 1999—down to 2.5 percent from 3 percent. But there's plenty of strength in the California market, which is predicted to remain strong through 2000, outpacing the national average. And since 50 percent of our visitors come from California, our lodging industry should post solid gains over the next two years.

This doesn't necessarily mean extended stays in San Diego. The trend now is toward weekend visits from baby boomers who bring their children. Shorter stays, but more of them. As for overseas visitors, the forecast is positive as the economies of Asia and Europe rebound. In '99, the greatest number of foreign visitors to San Diego were from the United Kingdom, Germany and Japan. The same should prevail in 2000.

Reint Reindeers, San Diego Convention & Visitors Bureau president and CEO, feels that San Diego's hot convention business will continue well into the future. He says the projected economic impact from the expanded Convention Center will be nearly $1 billion annually. (Tourism accounts for $5 billion spent in San Diego annually; the military, $9 billion; and manufacturing, $18 billion.)

"It's hard to believe manufacturing is our number-one industry," says Sal Giametta, vice president of communications at ConVis. "We don't see any smokestacks. But we manufacture electronics products, software, computer hardware ... and then there's WD-40 and all the biotechs." With Tijuana, the maquiladora industry and NAFTA, this region leads the world in the manufacture of television sets.

With the national and California economies strong, Giametta expects more visitors. "Personal incomes are up; consumer confidence is high. Californians are impulse travelers, coming here for weekends from L.A., Orange County—and even Arizona."

otel-room rates will jump, we're told, from an average of $103 a night to $107. But the supply of rooms will increase slightly, keeping the occupancy rate flat at 73 percent. This represents a healthy increase over the dark days of the recession, when the occupancy rate dropped to 64.3 percent in '94.

Patricia Moore of Insight Mortgage Services sees little change in mortgage applications. "My prediction for the next year is that house prices will go up a little (2 to 3 percent), wages a little; there'll be no true inflation; interest rates will fluctuate a little—scares up, trends down—but not counting any external stimuli (international), 2000 will be more of the same. Broadly neutral. Maybe we shouldn't examine things too closely. Heck, let's just enjoy."

Retailers might have mixed feelings about predictions for the new year. While '99 brought $21.3 billion in sales in San Diego, the figure for the year 2000 is predicted to be up 6.5 percent—to $22.7 billion. However, there has been a noticeable decline in the number of retail outlets, particularly in stores selling products readily available through the Internet—flowers, books and music. Mom-and-pop stores will be hit hardest.

he new factor in our economy—and in our lives—is the Internet. It will have a powerful impact on San Diego's economy, says Jim Fitzgerald, CEO of Epic Cycle Interactive, a Web business that helps start-up and small companies. "San Diego is a city of small and medium businesses," he says, "and that is exactly what the Internet is all about. Business-to-business commerce nationally will be $1.3 trillion by 2001. Whereas now 10 percent of small to medium businesses have active Web sites, 70 percent will have Web sites by 2002. Small businesses will be able to partner with national businesses with no regard to geography."

According to The Wall Street Journal (November 23, 1999), San Diego is now fifth as an Internet center, after Washington, D.C. ("Billville"), San Francisco, San Jose and Los Angeles—ranked above Dallas, Austin and many other high-tech centers. Companies are already moving here from Silicon Valley.

"There is such an abundance of technological companies in the Bay Area," says Sam Borgese, who just moved his real estate management software company, Bay Logics, here. "Retaining key employees was a constant challenge. San Diego has a much higher degree of employee loyalty. San Diego is also very attractive from an economic standpoint—from cost of living to office space."

We're not accustomed to being told we're a cost-of-living bargain. But in comparison to the Silicon Valley, maybe we are.

Among the better-known Internet companies based in San Diego are MP3.com, Proflowers.com, Realage. com, Intervu.com and PetPeople.com. MP3 downloads music, Proflowers sends bouquets all over the nation, Realage lets you compute your "real age" (which could be different from your chronological age), Intervu deals in Web services, and PetPeople peddles franchises—and will soon be selling pet products over the Net.

"MP3 is an example of how great work comes out of San Diego," says UCSD Web-site teacher Thomas Powell, whose own site, pint.com, advises on business models and adapting to the Net. But he also cautions against Internet hysteria.

"The rush to the Internet is like the gold rush of the 1850s in Northern California. Prospective miners were in such a hurry to hit the hills they'd go off without a mule, food or even a pickax. I'm like the guy who sells pickaxes to guys running for the hills. Some of these people have been given a lot of money by venture capitalists, and they need to get going like the house is on fire."

Powell is a conservative entrepreneur/academician himself. His Internet clients are established businesses—the likes of Kyocera North America and Proxima. "The rules of business apply even in the new economy," he says. "The Internet is not a fad. But there may be a correction causing foolish money to leave the market."

His worry echoes some widely held anxieties of other business-watchers.

"I'm worried about the stock market," says Moore. "It has no breadth. The techs are at such huge multiples. I'm worried that it's not sustainable."

"My long-range worry," says the Chamber of Commerce's Cunningham, "is our infrastructure. Airport inadequacies, port issues—will they discourage some new businesses? We need a rail system—an east-west linkage to move products. There are talks, but they seem dormant. Not dead but dormant. We could lose companies as big as Qualcomm if they find it too hard to transport products."

Richard Weiss, chief investment officer of City National Bank, isn't worried. He sees no reason to be bearish. "We'll have a transitional year—slower but still with good growth. Stock market gains will be more historically typical, in an 8 to 10 percent range instead of the 20 to 30 percent we've been experiencing lately. And actually, if you excerpt the tech stocks from the major market, the returns have already halved, to a 9 percent range. At City National we see nothing [in the stock market] suggesting a move to bearish, but nothing to see returning to a 25 percent rise."

ne possible area of concern, here and in the nation, is the growing gap in wealth," says Alan Gin. Technical skills bring good wages at one end, and blue-collar wages are low at the other. "I see that as a problem here in San Diego. Wages are lower, housing is higher, and it puts pressure on people. In the Midwest, the South and Arizona, it's not as stressful."

So will people begin to move out of San Diego —and other high-stress centers? Harry Dent, in his book The Roaring 2000s, predicts a massive population shift during the next 30 years out of the cities and suburbs and into what he calls the exurbs—smaller towns where computer-literate workers can live and work without being near job centers.

"The rising crime rate is the most significant factor causing suburban flight, but there are other problems as well: traffic congestion and pollution, the cost of real estate, and the deteriorating infrastructure. We can't expect these trends to stop any time soon," says Dent. "Crime is not going to stop moving into the suburbs, pollution is not going to disappear, most schools won't turn the corner for a long time, and traffic will certainly get worse."

Dent predicts the baby boomers will move to rural communities where they feel in control. A study at Washington State University, where the term "penturbia" (smaller towns) was coined, suggests that "approximately 20 percent of the population will make this shift. That means as many as 70 million people in North America will be on the move in the next 30 years."

But for the present, Cunningham notes that we're adding 55,000 people a year to San Diego. "We need 25,000 homes, and we're only building 12,000." That will certainly add to the crunch.

Some say the presidential election year will protect us from surprises, since it's in everybody's interest not to rock the boat. "Cocktail-party talk," says Weiss. "All academic research shows there is no statistical relationship between the two. Even if the political powers took some kind of action, it's foolish to think any one force would have that much control."

Except maybe Alan Greenspan. And he's received pretty good grades by economists for moving interest rates cautiously in the past few years.

So, given no radical surprises—like a dramatic rise in interest rates or an international situation we can't foresee—the prognosis looks healthy for the year 2000. Slower growth. Modest gains in the stock market. Home values holding steady. Jobs plentiful. Tourists happy. Europe and Asia recovering.

What more could we ask for?
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