Inland Empire challenge: Diversify jobs from ‘all eggs in one basket’

The Inland Empire’s mainstay industry of logistics and warehousing isn’t growing as fast as it once did.

The slowdown, economists Robert Kleinhenz and Manfred Keil said Tuesday in a state of the region address, underscores the region’s need to diversify its economies and not stick with an “all eggs in one basket” approach.

“The Inland Empire has not been growing, and it will not be growing,” said Keil, who pointed to disturbing challenges to diversify as federal spending cuts trickle down to healthcare and education sectors — among the largest areas for job gains in the region.

Kleinhenz told a group of 300 business and government leaders in Ontario that he partially blames the logistics softness on two things: rising tariffs that have limited imports into the twin ports complex in Long Beach and Los Angeles, and the Trump administration’s policies on deportation aimed at removing millions of undocumented immigrants.

The economists also cited another “clouds on the horizon” concern for logistics. Assembly Bill 98, which went into effect Jan. 1, tightens building standards for new warehouses and bans heavy-duty diesel truck traffic next to homes, schools, parks and other sensitive areas. The law was designed to counter the environmental and health effects of explosive warehouse growth in the Inland Empire.

A combined 4,000 warehouses occupy more than 1 billion square feet and generate more than 600,000 truck trips per day over the region’s major freeways and back streets.

Logistics shrinking

Logistics employment in the region once stood at 233,100 workers in 2020, and swelled to 278,500 by 2022, thanks to the huge warehouse and distribution hubs of Amazon, Home Depot and other retailers, which all saw a boom in orders during the pandemic. Since 2022, employment in the logistics industry has fallen 3.8% to 267,800 workers through the end of 2025, according to figures cited by the economists.

“What made the Inland Empire successful in the past, or what got us here, may be our downfall in the future,” the economists wrote. “Recognizing the potential problems is the first step towards finding a solution. All that we can do here is to alert decision makers to the problem.”

Despite expressing the logistics sector concerns, the economists do not expect an economic downturn in 2026 — even though some evidence shows the economy is moving in the direction of a “mini-stagflation.”

Stagflation is an economic term defined by the simultaneous occurrence of high inflation, slow or stagnant economic growth, and high unemployment — a trend underscored in the 1970s when inflation rates reached 15% and the unemployment rate approached 10%.

In a period of mini-stagflation — which exists today, the economists say — both inflation and unemployment also rise. However, today’s inflation rate is slightly higher than the Fed’s target of 2% with the unemployment rate in January 2026 hovering at 4.3% — slightly higher than the 4% rate recorded in January 2025.

The consumer price index, a key inflation gauge, rose 2.4% in January from a year earlier, according to the Bureau of Labor Statistics. That was down from 2.7% in December and lower than expected.

“We do not expect the inflation rate to come down from current levels and certainly it will not approach 2% in 2026, although we forecast it to reach that level late in 2027,” according to Kleinhenz.

Flight to coastal regions

Besides keeping watch on inflation and the jobs outlook, Kleinhenz is paying attention to an imbalance in high-paying jobs that draw people living in the Inland Empire to coastline communities.

The Inland Empire is challenged by efforts to to diversify, Kleinhenz pointed out, especially since employment in the region is shrinking in “high value-added sectors,” such as professional and business services, financial services and the information industry. Many of these higher-paying jobs are found in coastal areas, which is why the number of commuters out of San Bernardino and Riverside counties over the myriad freeways totals more than 173,000 daily, he explained.

“Instead of gaining jobs in these sectors, the area is losing them,” he said.

Another challenge facing the region are two of its brights spots — healthcare and education. Kleinhenz pointed to their vulnerability as the Trump administration cuts back federal spending.

“It’s been one of the biggest, if not biggest, drivers of job growth over the past year,” he said.

Labor market data from the state’s Employment Development Department for the Inland Empire showed that healthcare and education — which are treated as a single category by EDD — saw a 4.9% growth to 331,100 jobs in 2025 from 315,700 in December 2024. The combined sector claimed the biggest percentage gain in terms of job growth in the two-county region.

In addition to the logistics and warehouse sector, healthcare and education “keeps the Inland Empire afloat at this point,” Kleinhenz said. But he warned that workforce layoffs are beginning to trickle down to due to state and federal spending cutbacks.

The federal government began closing the funding spigot for healthcare programs after passage of the “One, Big, Beautiful Bill Act, signed into law by President Donald Trump on July 4, 2025.

Last October, Kaiser Permanente laid off 216 workers across Southern California — including some in Corona. And last month, the Pomona Valley Hospital Medical Center said it planned to lay off 265 workers across the hospital system beginning in March due to a budget shortfall of more than $40 million.

Public education also is seeing spending cuts throughout the region. This month, Riverside schools approved 30 layoff notices for next school year, while Temecula approved layoff notices for more than 20 employees, and Alvord schools tentatively cut 49 in the Riverside and Corona area.

“Public educattion is facing declining student numbers simply due to demographics,” the report states. “While public education may temporatily be safe due to Proposition 98 and budget reallocations drawing from reserves, it seems to us that given the current budget deficit and the demographics (smaller number of young people, larger number of older people), at some point that policy will have to be revisited.”

Prop. 98, passed in 1988, is a California constitutional amendment establishing a minimum annual funding guarantee for kindergarten-12th grade schools.

Housing rebound?

The housing market also is showing signs of sluggishness, according to Kleinhenz.

“Housing prices look more affordable in the Inland Empire when compared to coastal areas,” he said. “However, more affordable housing within the Inland Empire will not cure the situation unless they are coupled with higher paying jobs in the area —  which, in turn, requires a better educated labor force.”

The median home prices for the region were down through October.

For instance, the Riverside County median selling price of $599,000 was down 0.2% year over year and remains only 3% below the $614,500 high in April 2025. San Bernardino County’s $521,000 median was down 5% year over year — and 5% below the $549,000 high in October 2024.

When combined with a limited supply of homes for sale and weak construction activity, housing affordability has remained low, he said.

“The year ahead promises more of the same, unless the federal funds rate is lowered more significantly than forecasted,” Kleinhenz said. For the third year in a row, housing activity in the Inland Empire has been held back by a combination of low inventory levels of homes for sale and elevated mortgage rates.”

Klenheinz pointed out that home sales barely budged, increasing to 42,700 last year from 42,500 in 2024, making it the third slowest sales pace in the last decade, behind 2024 and 2023 (41,600).