San Diego Economic Outlook: Steady Growth Ahead, With Workforce and Housing as Key Factors

San Diego continues to post solid economic numbers, but the region’s outlook is increasingly shaped by a challenge familiar to local businesses: finding enough people to support continued growth.
That was a central theme of economist Dr. Christopher Thornberg’s keynote at the September 2026 San Diego Economic Forum, presented by Western Alliance Bank in partnership with San Diego State University’s Fowler College of Business and the San Diego Regional Chamber of Commerce. Thornberg, founding partner of Beacon Economics, described an economy with generally healthy fundamentals but mixed performance across key sectors and a labor supply increasingly constrained by limited housing.

“It’s hard to grow an economy with fewer workers,” Thornberg told attendees

San Diego Growth Continues, But at a Slower Pace

San Diego employment grew just under 1% over the past year, outperforming several other Southern California markets but showing a clear slowdown from earlier periods. The region had approximately 1.58 million nonfarm jobs in August 2026, up 0.9% year over year. Education and healthcare employment increased 4.7%, leisure and hospitality rose 3%, and wholesale trade increased 2.2%. Manufacturing was essentially flat, while construction, logistics, financial activities and information employment declined.

Other indicators point to continued economic activity. San Diego’s average weekly wage reached $1,409 in June, up 3.3% from a year earlier and nearly 23% from February 2020. Tourism also remains a bright spot. Hotel revenue per available room, or RevPAR, increased 5.9% year over year and 27.5% from its late-2019 level, while passenger traffic at San Diego International Airport has continued to rise.

Thornberg described San Diego’s major economic drivers as a mixed but generally stable picture. Tourism remains healthy. Biotech employment has softened, which he attributed in part to venture capital flowing toward AI investments in the Bay Area. At the same time, growth in job postings in professional, scientific and technical services could signal some improvement ahead.

Defense tells a similarly nuanced story. The number of active-duty military personnel stationed in the region has declined, but defense spending is rising, and San Diego’s aerospace industry continues to perform well. 

Labor and Housing Supply Present the Bigger Challenge

For Thornberg, however, industry-by-industry fluctuations are not San Diego’s primary economic concern.

The region’s estimated labor force declined 2.3% from July 2025 to July 2026, standing only 1% above its pre-pandemic level. Meanwhile, San Diego County’s population has grown just 2.5% over the past decade and was essentially flat over the past year.

Thornberg tied both trends directly to housing supply.

San Diego County has added about 102,000 housing units over the past decade, an increase of 8.6%, with stronger construction in the city of San Diego and Chula Vista than in many surrounding communities. But Thornberg argued that the region is still not adding enough housing to accommodate changing household patterns and expand the available workforce.

The issue is not simply housing prices, he said, but an insufficient supply of homes relative to the number of people who want to live in the region. Smaller household sizes compound the problem: San Diego County’s population grew only modestly over the past decade while the number of occupied households increased substantially faster.

For businesses, the connection is straightforward. Without additional workers, sustained employment growth can become harder. Without enough housing, attracting and retaining those workers can become more difficult.

Trade and Policy Add Uncertainty for San Diego Businesses

San Diego Regional Chamber of Commerce President and CEO Chris Cate also pointed to the next 18 months as an important period for the regional economy, particularly given San Diego’s close economic ties with Mexico.

Approximately 9,000 trucks cross the U.S.-Mexico border in the region each day, carrying more than $70 billion in annual trade between California and Mexico, Cate told attendees. He said changing tariffs and trade policies are creating uncertainty for businesses trying to make hiring, investment and expansion decisions.

The Chamber also identified housing permitting, immigration and workforce availability, infrastructure investment and federal funding as issues that could affect the region’s growth. Cate noted that San Diego’s military contributes 22% of regional gross product and supports 142,000 jobs, reinforcing the significance of federal defense policy to the local economy. 

The U.S. Economy: Growth Continues, With Risks to Watch

Nationally, Thornberg argued that the economy is stronger than weak consumer sentiment and recession concerns might suggest.

New data released Sept. 30 by the U.S. Bureau of Economic Analysis show real GDP increased at a 2.2% annual rate in the second quarter of 2026, revised substantially upward from the 1.5% estimate available at the time of the forum. First-quarter growth was also revised higher, to 2.5%. Consumer spending and business investment were among the contributors to second-quarter growth.

The updated data only further support Thornberg’s argument in his forum remarks. Thornberg emphasized the strength of underlying demand, noting that consumer spending had accelerated after a softer start to the year and that business investment remained strong, particularly around information technology and data centers.

But he also cautioned against interpreting stronger growth as an unqualified positive. Thornberg pointed to rising interest rates, declining household savings, large federal deficits and speculative investment tied to AI and financial markets as imbalances worth monitoring. His presentation summarized the national picture as an economy “picking up the pace,” but with potential risks building beneath the surface.

What’s Ahead for San Diego?

For San Diego businesses, the outlook combines continued economic strength with meaningful constraints.

Tourism is performing well, wages are rising and defense and aerospace remain important sources of activity. Biotech and several other sectors face near-term pressure, while trade and policy uncertainty add another layer of complexity.

The more structural challenge is labor supply. San Diego remains a highly desirable market with a diverse economy. Still, its ability to grow depends in part on whether the region can expand its housing stock enough to support a larger workforce. Depending on their needs, businesses planning for hiring, investment and expansion can benefit from a banking relationship that connects local market insight, specialized expertise and an integrated set of solutions.

Whatever your company’s future holds, Western Alliance’s banking experts can help you solve today’s challenges and position your business for future growth so you can succeed tomorrow. Connect with a trusted advisor to learn more. 

Watch the Full Presentation

Disclaimer: The views and opinions expressed by Christopher Thornberg during this presentation are his own and do not necessarily represent the views, positions, or policies of Western Alliance Bank.