Western Alliance Bank’s SoCal Economic Forum: California’s Economic Strength Hindered by Worker Shortages, Housing Shortfalls

The U.S. economy is poised for continued growth, driven by the robust financial health of American consumers with ample money and access to credit, said economist Christopher Thornberg, speaking recently at Western Alliance Bank and San Diego State University's Economic Forum at the SDSU Fowler College of Business.

Thornberg highlighted one key point: Despite grim economic headlines, the underlying data tells a different story about the resilience and spending power of U.S. households.

"The good news is the U.S. economy will continue to grow, largely on the basis of the fact that the U.S. consumer is alive and well, with tons of money and tons of potential credit," Thornberg said. "They will continue to spend, and they will continue to pull the economy forward."

Thornberg warned against "believing the hype." While headlines sometimes paint a bleak picture of the economy, they don't tell the entire story, he said.

"If you would read the stories in the paper, you would think that every American household is on the edge of starvation, desperately trying to figure out how to spread the few pennies they have left in order to survive these terrible, turbulent times," he said.

But data reveals a starkly different reality. "2023 was a good year. It's as simple as that," Thornberg said. "It was not in any way, shape or form a year where we narrowly avoided recession. We saw about two and a half percent growth overall, and personal spending added about 60% of that growth."

Thornberg attributes the increase in personal spending to lingering wealth after the pandemic. In response to the gross domestic product (GDP) losing $1.2 trillion, the Federal Reserve provided Americans with "a $6 trillion stimulus package, which amounted to $50,000 per household," he said.

"Home values went up, the stock market went up - all assets went up in value," Thornberg said. "Every income level saw increases in their net worth."

That resulted in a consumer spending boom. Between 2020 and 2023, people spent 85.4% more on air transportation, 68.9% more on new domestic light trucks and 66.2% more on foreign travel than before the pandemic. Spending at restaurants and bars is 38% higher, and concerts are selling out.

Although the labor market has cooled off, there are still 1.4 job openings for every person looking for employment. Labor force growth has slowed because of a decline in births and what Thornberg called a "broken" immigration system.

"We need people. Our labor force growth is not growing fast enough," he said. "People want to be here. There are wonderful opportunities in this nation, and we should be fixing our legal immigration system."

There's also been a slowdown in commercial real estate transactions, but prices are starting to bounce back. Office space was overbuilt during the past decade, and the shift to remote work during the pandemic caused vacancy rates to spike. Now, however, numerous companies - even Zoom - are requiring employees to return to the office, which should create greater demand for workspace.

"While there have been some increases in credit card and auto loan delinquencies, the overall share of debt that's delinquent is still near record-low levels," he said. Delinquent debt, along with bankruptcies and foreclosures, are half of what they were prior to the pandemic - and they were at record-low levels then.

"This is not a vision of an American public that is suffering," Thornberg concluded. "They seem to be doing great, no matter how you look at it."