While the “Great Recession” was felt throughout the country, it hit California with particular ferocity. Within California few places suffered more than the Inland Empire. The annual growth rate of real GDP is one way to measure the fallout of the recession.

Figure 1 compares the annual growth rate of real GDP in the Inland Empire to growth rates for the U.S. and California. The first thing to note is the apparent strength of the Inland Empire’s economy from 2002-2005. For most of that time, GDP grew at a rate approximately double that of the U.S. and higher even than that of California as a whole. But in 2006, the Inland Empire’s fast growth slowed precipitously. Neither California nor the United States experienced a large slowdown in GDP growth until 2007, when the Inland Empire’s GDP was actually already contracting. In 2008 and 2009, the Inland Empire’s GDP shrank at a much faster rate than that of both California and the United States. The preliminary estimate for the Inland Empire for 2010 shows a continued contraction, albeit much less severe than the previous years. The new data shows that real GDP currently is lower than it was in 2004: we are eight years into a lost decade in terms of lost output.

Based on real GDP growth rates, the “Great Recession” hit the Inland Empire both harder and earlier than either the U.S or California. Even the U.S. has yet to return to pre-recession output levels. The real sign of full recovery would be reaching full potential output, which takes into account the growth of the population and productivity. However, that would require growth rates above the normal, while below average growth rates seem to be on the immediate horizon for the Inland Empire.

Output per Person

Real GDP growth rates paint an interesting picture of the severity of the recession in the Inland Empire, but the numbers are skewed by population increases during the year. Most people are far more concerned with per capita real GDP than with the total, since this income per person is more relevant to them. For example, although China is now the second largest economy in the world in terms of output produced, it is not close to Japan when standard of living is measured on a per person income basis. Figure 2 shows the per capita real GDP growth rate of the Inland Empire again compared to the United States and California. All three experienced population increases every year from 2002-2010. Nonetheless, the pace of the Inland Empire’s population growth far exceeded those of both California and the United States. (See 2010 Census Shows Large Increase for Inland Empire in this issue for a detailed analysis of the IE’s population growth.)

Removing the effects of population growth on GDP changes the story dramatically. The Inland Empire’s impressive growth rates from 2002-2004 disappear, leaving behind growth rates comparable to those of the United States as a whole and below California’s. The Inland Empire’s 2006 economic slowdown seems much more dramatic when we look at per capita GDP, which shows virtually no growth for that year. The drop in per capita GDP from 2007-2009 is much more severe than the corresponding decline in real GDP. Not only does this drop indicate a more severe recession, it also shows that the Inland Empire’s population continued to grow in spite of the very troubling economic situation. The preliminary numbers have the Inland Empire’s per capita GDP following another 2.5 percent in 2010.We expect 2011 numbers to show that real per capita GDP is now lower than it was in 2001, when data was first collected. In terms of this measure, there has already been a lost decade.

A word of caution is warranted here. Perhaps we have painted too bleak a picture for the Inland Empire in terms of per capita output. The fact is that a substantial number of workers commute from the Inland Empire either into the Greater Los Angeles area or into San Diego County. As a result, these workers augment the GDP of those areas, but are not counted as residents there. In the presence of large commuting flows in one direction, per capita GDP will be overstated in the receiving geographical areas (Greater Los Angeles and San Diego County) and understated in the area from which these workers originate (San Bernardino County and Riverside County).

Despite this subtlety, both figures paint a dismal picture of the effects of the recession on the Inland Empire’s economy. The Inland Empire was particularly vulnerable to the effects of a recession triggered by the collapse of the housing sector, given the importance of construction in the region’s economy. While the “Great Recession” officially ended over two years ago for the United States, the Inland Empire is still waiting for any real signs of recovery, much less a return to its full potential GDP. Weakness in the U.S. and California economies bodes poorly for the chances of recovery in the Inland Empire in the near future. Furthermore, without significant increases in GDP growth, the very high unemployment rates experienced here will continue to persist.

Comparison to other California MSA Regions

The relative severity of the recession in the Inland Empire can further be seen through a comparison with California’s other Metropolitan Statistical Areas (MSA). Figure 3 shows the decline in real GDP from peak to trough for each MSA. Real GDP of some MSAs, including the Inland Empire’s, continued to shrink in 2009, meaning that until the 2010 numbers are released, we will not know if they have reached the true bottom. Other California MSAs did not escape the recession entirely, but experienced a less severe decline in real GDP, if any at all.

As Figure 3 shows, the Inland Empire saw one of the largest drops in GDP of any California MSA. Only two MSAs, Merced and Redding, experienced more severe declines, and another two MSAs, Santa Rosa-Petaluma and Modesto had declines roughly equivalent to those experienced by the Inland Empire. While there seem to be no distinguishable patterns between the north and south of California in this figure, the brunt of the recession appears to have hit the inland portions of the state, with the coastal areas hit less severely (“East-West Divide”). The Inland Empire’s position among the hardest hit of California’s MSAs is particularly sobering, given that California is one of the states most adversely affected by the “Great Recession.”