Fits and Starts: Construction Leads Fragile Economic Recovery In Hard-hit Inland Empire

By Sharon McNary, KPCC

This story is part of the weeklong series, Fits And Starts: Stories Of Recovery In California Cities,  a partnership between Capital Public Radio and KPCC. Find the full series here.

Nothing says construction is in a post-recession comeback like the cranes tilting up slab walls of a  new mega-warehouse on once-rural fields in the Inland Empire city of Moreno Valley.

Here and throughout Riverside and San Bernardino counties, new construction and warehouse jobs like those at this future grocery warehouse rising alongside Highway 60 are helping to lift California's inland region out of recession.

But some caution that the recovery is fragile — built on low interest rates and moderate fuel prices — and that increases in either of those could undermine the latest economic gains.

Johannes Moenius, an economics professor at the University of Redlands, says job growth is finally outpacing population growth in the Inland area. But he has concerns.

"I'm worried not for the minute not for the day or the month," Moenius, said.  "I'm worried for the medium run because we're just doing more of the same," in relying on construction and warehousing and other lower paid jobs.

Bankruptcy lawyer Arnie Wurhman saw the Great Recession up close. Riverside and San Bernardino counties were among the nation's top five regions for going broke. Most of his clients were in the real estate, construction and finance industries that had been lifted on the region's housing bubble, then crashed beginning around 2007.

"Other places did not crash like we did," Wurhman said, blaming the region's reliance on construction-related jobs. "I think the Inland Empire was absolutely hell central when it came to the economy."

Murrieta attorney Arnie Wurhman was overwhelmed with bankruptcy cases during the worst of the Great Recession, but now business has slowed to the point that he's considering working with a former client whose once-broke construction business is making a comeback. Sharon McNary / KPCC

He was overwhelmed with clients through about the end of 2011, But this year, for the first time in years, he started noticing "sticks in the air"; that is, new construction projects.

"It surprised me," Wurhman said. "And there were more and more and more of them. By February, I was just really, really seeing the drop off in bankruptcies even more than the year before."

Downside For Bankruptcy Lawyer

The downside for a bankruptcy attorney is that when the economy improves, business stalls. So Wuhrman is considering taking a job running the finances for a former client who is about to re-establish his once-broke construction company.

"He sees in me great financial prowess and wants me along for the ride," Wuhrman said. "What I am feeling, purely on an empirical basis, it feels as if we're about to lift off."

Some of that liftoff can be seen in the numbers.

• Unemployment is at 9 to 9.5 percent in the two counties. While that's two points higher than the rest of California, it is a significant improvement from the Inland area's 14 percent unemployment rate during the worst of the recession. Average wages in the region have long been well below neighboring Los Angeles and Orange Counties.
• The top employing industry in the area is warehousing and trucking, with more than 300,000 Inland area jobs, nearly equal the pre-recession peak.
• Construction has picked up in the Inland region, however the building industry only employs about 73,000 people, about half of the number who held such jobs at the height of the building bubble, in 2006.

Despite its visibility, construction is only the seventh-largest employment sector in the inland area, behind government, education and health services, leisure and hospitality, professional and business services, and even manufacturing.

Home prices have risen steeply, up more than 17 percent in San Bernardino County and up nearly 10 percent in Riverside County, according to DataQuick analysis for the year ending in July.

Cranes are building a new regional headquarters and distribution center for the German-based grocery company Aldi. The site will employ about 200 workers and serve hundreds of new stores as the discount chain expands through California and the west.
 
But Redlands econ professor Moenius said that the local economy needs more diversity.  That the Inland Empire's construction industry is vulnerable to changes in home mortgage interest rates. If those go up, construction could decline again.

University of Redlands economist Johannes Moenius says construction and warehouse jobs are helping to lift the Inland area out of recession, but those industries are vulnerable if interest rates and fuel prices increase. Sharon McNary / KPCC

Likewise with the logistics industry, whose warehouses cover so much of the freeway-adjacent land in the inland region. If fuel prices go up in the next few years, shipping and trucking jobs could slump again.
 
"We're not recovering with a future perspective that changes the potential for bringing the types of jobs that people give back the level of stability," Moenius said.

The recent growth in Inland Empire jobs in the construction, trucking, warehousing and hospitality industries are on the low end of the pay and education spectrum. The region's got more work, but many of the new jobs are temporary with minimal benefits. A large portion of Inland Empire workers still commute to jobs in other counties.

"We're not doing much to ensure our health and stability for the future, so I am worried," Moenius said. "It is the case that certain industries are more prone to temp workers, and that's not great for a region, that's not great for neighborhood stability. That's not great for bringing up children."

Quality Of Life

Across Highway 60, within eyeshot of the under-construction Aldi warehouse, quality of life is on Shari Taylor's mind as she looks out the door of her 30-year-old horse feed supply business.
 
"My mountains are disappearing. I hate that, but that's what happens," Taylor said.

She's 71, a native of the area. Running her Moreno Ranch Supply tack shop for more than 30 years out in the east end of Moreno Valley, she's seen the region transform through cycles of boom and bust.

Shari Taylor says the view of nearby hills that she has long enjoyed from the front door of her horse feed supply business has been obscured by a warehouse being built across Highway 60. Sharon McNary / KPCC

Each boom adds more traffic and consumes more land for homes and, now, mega-warehouses like the Aldi warehouse that blocks her view of the hills and canyon beyond.

"They just keep encroaching on the rural areas. There's not much left in Moreno Valley that's rural," Taylor said.

Her customer base is dwindling, so she also boards a few horses and sells horse sculptures and trinkets to keep the money coming in. She still rides whenever she can, often hauling her horses to nearby Perris Lake. She says many of her neighbors have left, and she ignores the ones who urge her to move away.

"I love it. I wouldn't leave it for anything," Taylor said.

Graphics by Melody Stone / Capital Public Radio