SCAG Economic Roundtable Update

SCAG’s Economic Roundtable met on Feb. 20 for its first quarterly meeting in 2025 to review trends, data, and current events impacting the region’s economy. The new U.S. presidential administration and the Southern California wildfires dominated the discussion as the impacts of these events on the region’s economy are still unfolding.  

The following overarching themes emerged from the conversation: 

• While the effects of the wildfires have been severe and devastating, the region’s economy is expected to show its resiliency as it absorbs these challenges without significant disruption. The massive size, diversity, and vigor of Los Angeles County and the regional economies provide additional incentives to rebuild post-wildfires, likely accelerating the process.  
• Based on past fires, local evidence, and assuming all residents will quickly embark on rebuilding, this report offers a very preliminary timeline for rebuilding in the Palisades and Eaton fire areas. 
• Economic, foreign, and administrative policy uncertainty stemming from the first month of the Trump administration makes it challenging to set expectations for future policies, programs, funding, and investment at this juncture. 

More detail on each of the major themes identified by the Economic Roundtable can be found in the following report. Supporting data are available on the Economic Trends Tool.  

SCAG Region Economy At-A-Glance

• In the region and its counties, economic growth through 2024 and into 2025 has been modestly positive; however, growth continues to be limited to a few industries. These include healthcare and local government, as well as accommodation and food services in Los Angeles County and logistics in the Inland Empire. These are generally low-paying industries. 
  • This imbalance is more severe in the Inland Empire, where jobs outside these industries have declined substantially. 
  • The 2023-24 loss of Hollywood jobs appears to have stopped.  
• Regional unemployment has stayed close to five percent for close to two years, but this stability has masked major drops in the size of the labor force, especially in the coastal counties. 
• The agriculture sector in areas such as Imperial County could witness some risk due to the disassembly of U.S. Agency for International Development, a major purchaser of commodity crops for foreign humanitarian aid.  

Uncertainty From Washington

• Businesses, nonprofits, public agencies, and other entities are furiously assessing their relationship to the federal government, which is more far-reaching than many have realized.   
• Setting expectations for future policies, programs, and funding at this juncture is challenging. Such an assessment requires determining which actions by the Trump administration reflect true policy changes that will be implemented versus negotiating tactics or changes likely to be reversed by courts.
  • The dilemma is especially acute for businesses and entities dealing with foreign relations and trade. Europe is questioning the value of American partnerships, while impacts on Southern California’s longstanding relationship with Asia-Pacific allies could result in heightened local effects.  
  • A state-level example is the California Air Resources Board not seeking their traditional waivers from the U.S. Environmental Protection Agency to mandate stricter emission regulations—creating risks for local air quality, public health, and the clean transportation industry, exemplifying how longstanding state policy could be subject to change.  
  • Uncertainty from the Trump administration and the fogginess it gives to the current economic outlook impacts investment and more foundational processes, such as contract law and federal economic and population data.  
• As of late 2024, economists expected up to four interest rate cuts in 2025. The Federal Reserve now indicates that up to two cuts could occur and has signaled unwillingness to make any cuts given limited available information and inflation stuck above target at 3.4 percent year-over-year.  
  • A more modest approach to interest rates affects the outlook for housing, which had been projected to rebound after poor sales and production in late 2024. 
  • Uncertainty weighs heavily on consumer sentiment and consumer spending, which impacts the large regional logistics and retail industries. 

The fog clouding the economy puts forecasters in a tricky position because there is high demand for economic insights but little ability to provide these insights with certainty. 

Los Angeles Wildfires and the Economy

A special thanks to roundtable member Mark Schniepp for developing many of the statistics and estimates below. 

• As of Feb. 24, with the Eaton and the Palisades fires now 100 percent contained, Cal Fire reports that the fires destroyed 16,261 structures and damaged 460. The damage includes 5,551 residential structures from the Palisades fire and 6,103 from the Eaton fire.  
• Goldman Sachs estimated that 25,000 workers will be absent from the January payroll employment report by the state. The disruption from the wildfires is unlikely to fundamentally change the labor market or economic output in a region with over 9 million workers. 
• The rebuilding effort should spur economic output especially in construction and the demand for household and durable goods. 
• There remain substantial unknowns—the following figures and insights are based on currently available information.  

Measuring the Fires’ Economic Impact 

• The insurance industry has conducted a variety of estimates to gauge their financial exposure to the fires. These range from $20-45 billion for both fires combined.  
  • The median home price in the Palisades fire was $3.4 million and Eaton fire was $1.3 million. Because these are desirable parts of a high-productivity region, a large portion of this reflects land value. While structures were destroyed, land value remains intact (aside from debris clearing, remediation, and any longer-term issues).  
  • Using tax assessor data, the total value of destroyed and damaged structures from the fire sums to a much lower $9.6 billion.  
  • Due to inflation in materials cost, labor availability (both very sensitive to federal tariff and immigration policy), and the fact that the fires destroyed many higher-end homes, rebuilding costs could be as high as $1,000 per square foot. That figure would put the actual cost of rebuilding lost structures between $12.4 billion to $19.2 billion. 
  • Cal Fire’s estimates include some utilities and infrastructure, but omit costs associated with large portions of public utilities, roads, water, and other infrastructure.  
  • Replacing home furnishings will inject $500-700 million into the county’s retail economy; the (yet unknown) number of vehicles destroyed will further increase spending—and sales tax receipts. 
  • Employment impacts will be meaningful but temporary—a January 2025 estimate of the lost income of 20,000 to 25,000 workers, if continued for six months, is close to $500 million. 
• Residents displaced from both wildfires (the population of the fires’ extent is roughly 100,000) are impacting already tight rental and for-sale housing markets nearby. Evidence is even being seen in the Ventura and Orange County markets, raising the prospect that some residents might relocate permanently. 

Insurance is the Canary In the Climate Coal Mine 

• The home insurance system now faces an acute crisis, especially following last year, when many insurers dropped policies or left the state entirely. 
• The state insurance commissioner has taken some steps to allow insurers to increase rates to match the cost of future risk. Previously, rate increases were severely limited.  
• The state-backed insurance system (the FAIR Plan) does not appear to have sufficient surplus to cover the losses in properties that it insures in the Palisades and Eaton fire areas. 
• The total losses of the fires make clear that home hardening and fire-resistant retrofitting are well worth the investment; there is an opportunity for insurance providers to incentivize this form of risk reduction going forward.  
• Wildfire risk is very broadly distributed. Based on existing Cal Fire maps of high- and very-high-hazard areas, 17.7 percent of the SCAG region’s urbanized, residential parcels are at risk. However, the Eaton fire area destroyed city blocks well outside of this boundary. An astounding 49.7 percent of the region’s homes are within a half-mile of a wildfire hazard area, affecting risk to residents and the insurance pool.  

For more information on the challenges faced by the insurance industry, read the 2024 third-quarter SCAG Economic Roundtable Update on SCAG News. 

Rebuilding After the Fires 

• Resilience against natural disasters is very asymmetric—the duration of recovery far exceeds a destructive event, and the burden in both cost and time disproportionately falls on the economically vulnerable. In particular, the Eaton fire devastated historically embedded communities in Altadena. Many in such areas lived in legacy homes with no mortgage and limited or no insurance.  
• The city of Los Angeles’ average permitting time for a single-family home exceeds one year, but the push for dramatically expedited reviews and Governor Newsom’s suspension of California Environmental Quality Act and Coastal Act requirements could dramatically shorten the rebuilding timeline.  
• Initial debris removal by the U.S. Army Corps of Engineers is estimated to take 12 months and is expected to be federally funded. 
• Previous urban wildfires provide some insights on rebuilding timelines, particularly the Tubbs Fire (Sonoma County, 2017, 5,000 homes destroyed) and the Camp Fire (Butte County, 2018, 13,500 homes destroyed). 
  • Both cases saw an initial building surge which tapered off. According to the latest local data, 76 percent of homes in the Tubbs Fire area had been rebuilt, but only 20 percent in the Camp Fire area.  
• The higher value of properties lost in the Los Angeles fires, plus the massive size, diversity, and vigor of the county and regional economies, provide additional economic incentives to rebuild and will likely accelerate the process.  
• Nonetheless, not everyone will return. Roughly 10 percent of homes statewide are uninsured, and rebuilding a community is a greater task than rebuilding structures. The desire to return can also be heavily contingent on life stage—a mid-career head-of-household may be more willing to wait several years for rebuilding than a retiree for whom this is a bigger share of their remaining years. Individuals (or capital) that can wait will benefit.  
• Based on past fires, local evidence, and assuming all residents will quickly embark on rebuilding, a very preliminary timeline for rebuilding in the Palisades and Eaton fires may be: 

• New structures will be built to modern fire standards or beyond. Smaller or older homes will likely be replaced with larger ones, but generally older and higher-value homes in the fire areas will not be replaced by uniform mass production.  
• The fire areas had far more resident workers than jobs (this ratio was nearly 3:1 in Altadena), and businesses in these areas were mostly local or community-serving. Given the lower or zero population growth expected for quite some time, the prospect for these businesses is especially dim.  
• Leadership and political will could substantially affect the pace and quality of recovery. Local permit streamlining and regulatory suspensions are promising—prioritizing cleanup, coordinating a mortgage forbearance period, and financing the (safer) rebuilding of utilities are further examples of federal or state assistance. Specific financial pledges (e.g., LA Rises’ $100 million pledge) might be less impactful simply because they provide small benefits per person. 
• These immediate needs could catalyze long-deferred reforms in zoning and process streamlining more broadly, a primary driver of affordable home scarcity that will certainly be exacerbated by the fires. In other words, the policy changes and reforms in response to the fires could accelerate housing production more broadly.