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Economy

Amidst Closures, California Employment Expands… But Pace of Recovery a Key Question

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Labor Force Trouble: 1 Million Less Workers In The Workforce Today; State Unemployment Rate Remains Stubbornly High

June 19, 2020 — Although local officials, and the general public continue to grapple with how to appropriately respond to the COVID-19 pandemic, the labor market in California showed signs of life in May, according to an analysis released jointly by Beacon Economics and the UC Riverside School of Business Center for Economic Forecasting and Development.

Following the loss of 2.4 million jobs in April, total nonfarm employment in the state expanded by 141,600 positions in the latest numbers. Given this modest rebound, the unemployment rate in the state remained stubbornly high at 16.3% in May, down from 16.4% in April.

“The folks out there calling for a long, protracted U-shaped recovery, believe the damage from the closures has been so profound that the economy won’t be able to grow even after mandates are lifted,” said Christopher Thornberg, Founding Partner of Beacon Economics and Director of the UCR Center for Forecasting. “It’s true the May data represent only a small uptick, but there was a bounce in employment while the economy was still largely closed.”

Thornberg acknowledges that until the June and July numbers are available – the ones that will reflect what has happened after the reopening of economic activity – the pace back to normality will not be truly understood.

Year-over-year employment growth in California stands at -13.0%, the second largest annual decline on record, only trumped by last month’s figures. The state performed slightly worse than the national economy, where nonfarm employment declined by 11.7% over the same period. April’s numbers were also revised downward, with total nonfarm employment in April 70,300 lower than original estimates had suggested, offsetting some of the impact of the gains seen in May.

As mentioned in last month’s Beacon Employment Report, around 75% of workers who have been laid off in the state report that they are temporarily unemployed, and the hope is that many will return to their prior jobs as communities across the state begin to re-open. That said, many of these workers have been unemployed for close to three months. From May 2019 to May 2020, 2.2 million workers were added to the state’s unemployment ranks. In May, the number of unemployed workers in California stood at 3,018,200, over three and half times the level seen one year earlier. The magnitude of the job losses, and the high unemployment rate, suggest that the damage caused to the state’s labor market will take some time to repair, but the pace is uncertain.

In addition, there were over 1 million fewer workers in the state’s labor force in May than there were in February 2020. In other words, 1 million residents who were either employed or looking for work in February have stopped searching for employment. Labor force participation is usually seen as important sign of economic vitality, as an expanding economy usually draws workers into the labor force.

The state’s economy has fared worse than the national economy with the national unemployment rate at 13.3% compared to 16.3% in California. This could be due to the fact that some states re-opened their economies quicker than California. It could also be that the state’s residents are acting more cautiously than people in other parts of the nation and have been more reluctant to resume normal daily activities.

Key Findings:

  • The Construction sector led jobs gains in May, boosting payrolls by 75,000 positions. The strong month accounts for just over half the jobs lost in the Construction sector in recent months, with year-over-year growth now standing at a 6.9% decline.
  • Leisure and Hospitality also had a strong month, increasing payrolls by 64,800 in May. All of these new positions came from Accommodation and Food Services, which increased payrolls by 66,700. Despite the strong month, Leisure and Hospitality payrolls are down 43.9% from a year-over-year perspective. As parts of the economy continue to open, many of these jobs will return, but the impact of the public health mandated closures and capacity constraints, mean that a significant number of the jobs in these sectors will come back more slowly.
  • Other sectors posting sizeable increase in May were Health Care (45,300), Administrative Support (24,200), Manufacturing (17,100), and Wholesale Trade (11,400).
  • The only sectors posting sizeable declines in May were Government (-95,800) and Information (-6,300). The majority of the declines in Government were from education at the state and local levels.
  • Regionally, job increases were led by Southern California. Los Angeles (MD) saw the biggest jump, where payrolls grew by 31,300 during the month. The Inland Empire (15,200), San Diego (13,400), and Orange County (12,800) also added a significant number of jobs during the month. Over the past year, Orange County (-15.2%) saw the steepest job losses in the region, measured by percentage decrease, followed by Los Angeles (MD) (-13.5%), San Diego (-13.1%), Ventura (-12.5%), and the Inland Empire (-11.7%).
  • In the San Francisco Bay Area, the East Bay experienced the largest job increases, where payrolls expanded by 16,100 positions in May. San Jose (11,000), San Francisco (MD) (7,000), Santa Rosa (4,000), San Rafael (MD) (1,600), Vallejo (1,400), and Napa (600) also saw payrolls expand during the month. Over the past year, San Rafael (MD) (-15.3%) had the steepest declines in the region, followed by Vallejo (-14.1%), the East Bay (-14.1%), and San Francisco (MD) (-13.9%).
  • In the Central Valley, Sacramento experienced the largest monthly increase as payrolls expanded by 18,600 positions. Payrolls in Modesto (3,000), Bakersfield (1,500), Redding (300), and Madera (200) increased as well. Over the last year, Chico (-16.6%) had the steepest declines followed by Modesto (-14.0%), Redding (-12.7%), Bakersfield (-12.4%), Visalia (-12.2%), Stockton, (-11.5%), and Sacramento (-11.3%).
  • On California’s Central Coast, Santa Barbara and San Luis Obispo shed the largest number of jobs, with payrolls declining by 1,600 in each region over the month. Payrolls in Santa Cruz (-1,100) and Salinas (-1,000) also declined during the month. From a year-over-year perspective, Salinas (-19.8%) shed positions at the fastest rate, followed by San Luis Obispo (-18.7%), Santa Cruz (-16.8%), and Santa Barbara (-15.5).

Christopher Thornberg founded Beacon Economics LLC in 2006. Under his leadership the firm has become one of the most respected research organizations in California serving public and private sector clients across the United States. In 2015, Dr. Thornberg also became Director of the UC Riverside School of Business Center for Economic Forecasting and Development and an Adjunct Professor at the School. An expert in economic and revenue forecasting, regional economics, economic policy, and labor and real estate markets, Dr. Thornberg has consulted for private industry, cities, counties, and public agencies. He became nationally known for forecasting the subprime mortgage market crash that began in 2007, and was one of the few economists on record to predict the global economic recession that followed. Dr. Thornberg holds a Ph.D in Business Economics from The Anderson School at UCLA, and a B.S. degree in Business Administration from the State University of New York at Buffalo.

Career & Workplace

California’s Worker Shortage Struggle Continues…And Likely to Continue in 2023

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Job Growth Modest In Latest Numbers; Unemployment Rate Unchanged

California’s labor market expanded modestly in the latest numbers, with total nonfarm employment in the state growing by just 16,200 positions during December, according to an analysis released jointly by Beacon Economics and the UCR School of Business Center for Economic Forecasting and Development. November’s gains were also revised down to 19,900 in the latest numbers, a 6,900 decrease from the preliminary estimate of 26,800.

Overall, California added jobs at a healthy pace in 2021 and 2022. As of December 2022, the state had recovered all of the jobs that were lost in March and April 2020 at the pandemic’s outset, and there are now 70,000 more people employed in California compared to February 2020. Over this time, total nonfarm employment in the state has grown 0.4% compared to a 0.8% increase nationally. California’s economy increased payrolls by 3.6% from December 2021 to December 2022, outpacing the 3.0% increase nationally over the same period.

“During the year, California’s employers added jobs more quickly than was the case in the national economy, but labor shortages in the state dampened job growth towards the end of the year and will continue to be a drag on job growth in 2023,” said Taner Osman, Research Manager at Beacon Economics and the Center for Economic Forecasting.

Indeed, the state’s struggle to add available workers continues. In December, the state’s labor force contracted by 26,800 workers. Since February 2020, California’s labor force has fallen by 313,600 workers, a 1.6% decline. This lack of workers made it difficult for some employers to bring on the additional staff they typically recruit during the holiday season. California’s unemployment rate held steady at 4.1% in December, unchanged from the previous month. While this figure is near historic lows, the state’s unemployment rate remains elevated relative to the 3.5% rate in the United States overall.

Industry Profile  

  • Employment in nearly half of the job sectors in California now exceed their pre-pandemic levels; sectors that were hit the hardest by the pandemic have yet to recover all the jobs that were lost.
  • Health Care led job gains in December, with payrolls expanding by 8,900. Health Care payrolls are now 4.4% above their pre-pandemic peak.
  • Other sectors posting strong gains during the month were Construction (7,500), Government (6,000), Leisure and Hospitality (5,300), Professional, Scientific, and Technical Services (4,500), Other Services (1,300), and Real Estate (1,100).
  • Retail Trade (-9,500) posted the most job losses during the month. Other sectors with significant job losses were Information (-6,100), Wholesale Trade (-2,000), and Administrative Support (-1,900).

Regional Profile

  • Regionally, job gains were led by Southern California. The Inland Empire saw the largest increase, where payrolls grew by 9,400 (0.6%) during the month. San Diego (8,600 or 0.6%), Orange County (4,300 or 0.3%), Los Angeles (MD) (2,100 or 0.0%), and Ventura (1,200 or 0.4%) also saw payrolls jump during the month. Since April 2020, the Inland Empire (140.8%) has experienced the strongest recovery in the region, followed by El Centro (115.3%), San Diego (105.1%), Orange County (100.0%), Los Angeles (MD) (94.7%), and Ventura (91.5%).
  • In the Bay Area, San Francisco (MD) experienced the largest job increase, with payrolls expanding by 6,400 (0.4%) positions in December. The East Bay (3,100 or 0.3%), San Jose (1,800 or 0.2%), Santa Rosa (800 or 0.4%), San Rafael (MD) (600 or 0.6%), Vallejo (500 or 0.4%), and Napa (400 or 0.6%) also saw payrolls expand during the month. Since April 2020, San Jose (105.3%) has experienced the strongest recovery in the region, followed by San Francisco (MD) (96.1%), the East Bay (92.6%), Santa Rosa (88.3%), Napa (79.4%), Vallejo (74.3%), and San Rafael (MD) (55.5%).
  • In the Central Valley, Sacramento experienced the largest monthly increase, as payrolls expanded by 2,800 (0.3%) positions in December. Payrolls in Fresno (1,400 or 0.4%), Visalia (500 or 0.4%), Chico (300 or 0.4%), Modesto (300 or 0.2%), Merced (200 or 0.3%), and Madera (100 or 0.2%) increased as well. Since April 2020, Stockton (147%) has experienced the strongest recovery in the region, followed by Visalia (135%), Madera (124%), Merced (122%), Sacramento (115.7%), Fresno (114.4%), Redding (113.9%), Hanford (110.3%), and Yuba (110%).
  • On California’s Central Coast, San Luis Obispo added the largest number of jobs, with payrolls increasing by 900 (0.8%) during the month. Santa Cruz (600 or 0.6%), Santa Barbara (600 or 0.3%), and Salinas (400 or 0.3%) experienced payroll declines during the month. Since April 2020, Santa Barbara (103.6%) has enjoyed the strongest recovery in the region, followed by San Luis Obispo (100%), Santa Cruz (91.6%), and Salinas (84.3%).
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Economy

Pandemic Left Behind, the Inland Empire Economy Flourished in 2022

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A Driving Force: Local Transportation and Warehousing Industry Has Helped The Region Outperform Other Areas

Despite the recession drumbeat getting louder in many quarters across the nation, the Inland Empire’s economy is not only showing strength, but is outstripping California’s other major metros and the state as a whole along some very key measures, according to an analysis released today by the UC Riverside School of Business Center for Economic Forecasting and Development.

From employment to the labor force to consumer spending to wages to commercial and residential real estate, the Inland Empire has been a relative standout as the COVID-19 crisis fades further into the past. In particular, the pandemic-driven surge in e-commerce has pushed the region’s Transportation and Warehousing sector to new heights, boosting payrolls by more than 41% since February 2020, which outpaces growth in the state by a wide margin.

“This sector has long been one of the Inland Empire’s core industries and, ultimately, has been a driving force behind the region’s better and faster recovery,” said Taner Osman, Research Manager at the Center for Economic Forecasting and one of the report’s authors. “Moreover, the enduring shift towards online purchasing has intensified ongoing demand for the industry’s services, which bodes well for the Inland Empire as there is such a strong base and existing infrastructure already on the ground.”

Key Findings: 

  • Labor Market Fully Recovered… And Growing: The Inland Empire has more than recovered the 228,700 jobs it lost due to the pandemic’s shutdowns. Since April of 2020, the region’s economy has added more than 316,000 jobs, outpacing both the state and the nation. Regionally, total non-farm employment has grown 5.5% since February 2020 compared to just 0.2% in California and 0.5% in the United States.
  • IE Labor Force Growth A Standout: Unlike other areas of California, the Inland Empires’ labor force (individuals willing and able to work) has grown steadily. From February 2020 to October 2022, the region’s labor force rose by 75,800 workers, a 3.6% increase. California’s labor force, on the other hand, declined by -1.3%, or -256,900 workers.
  • IE Wage Growth Besting Other Areas… Then There’s Inflation: From 1st quarter 2021 to 1st quarter 2022 (the latest data available), wage growth in the Inland Empire (4.6%) has significantly outpaced California overall (1%). Local wage growth was stronger in San Bernardino County (5.2%) compared to Riverside County (3.9%). However, importantly, real wages fell -2.9% over the last year due to high inflation.
  • Consumers: Spend, Spend, Spend!: From 2nd quarter 2021 to 2nd quarter 2022 (the latest data available), taxable sales receipts in the Inland Empire jumped a hefty 9.5%. With fuel prices near record highs earlier in the year, and more people traveling for work and leisure, spending at Fuel and Service Stations was the region’s fastest growing taxable sales category, surging 39.2%.
  • IE Warehouse Space Now More Expensive Than OC and San Diego: The trends occurring in e-commerce have caused the demand for Warehouse and Distribution space to surge in the Inland Empire. The vacancy rate among these properties fell to 1.1% in the 3rd quarter of 2022 as asking rents ballooned 92.4%. While warehouse space in the region is still more affordable than it is in Los Angeles County, it is now more expensive than in Orange and San Diego Counties.
  • Housing Market Blues Not So Blue: Although today’s elevated mortgage rates are constraining demand, home prices in the Inland Empire continue to rise. From November 2021 to November 2022, the region’s median home price rose 3.5%, stronger growth relative to Los Angeles (-0.5%) yet slower compared to Orange (10.8%) and San Diego (6.3%) Counties.
  • Rental Market Surges: Demand for apartments in the Inland Empire is also booming. The apartment vacancy rate fell to 2.9% in the 3rd quarter of 2022 as asking rents jumped 7.9% to $1,854 per unit, per month. But even with that increase, the Inland Empire remains a more affordable rental market than Los Angeles ($2,358), Orange ($2,499), and San Diego ($2,247) Counties.

The new Inland Empire Regional Intelligence Report was authored by Osman and Senior Research Associate Brian Vanderplas. The analysis examines how the Inland Empire’s labor market, real estate markets, and other areas of the economy have recovered from the COVID-19 pandemic and their outlook for the remainder of the year.

View the full analysis here.

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Economy

Greatest Risk to Today’s Economy? The FED Despite Turbulence, Recession Remains Unlikely in 2023

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Today’s Maladies Are Symptoms Of A ‘Stimulus Hangover’ Not Drivers Of A Downturn; California Finally Recovers All Jobs Lost To Pandemic

A leading economic forecast does not see a downturn in 2023 as assured, or even likely, as long as the Fed doesn’t drive one. According to Beacon Economics‘ latest outlook for the United States and California, today’s ailments are symptoms of a hangover from the over stimulus that was injected into the U.S. economy during the pandemic, not signs of deeper weakness or triggers of a near-term recession.

Today’s economy is running at full speed, the exact opposite of what economists call a recession, when an economy produces less than it is able,” said Christopher Thornberg, Founding Partner of Beacon Economics and one of the forecast authors. “The United States is not struggling with a lack of demand; we’re struggling to meet demand.”

The new forecast points to the fact that the U.S. economy has added 4 million payroll jobs since the start of the year, that the unemployment rate remains well below 4%, that the job openings rate is well above its pre-pandemic peak, that industrial production is at a record high, that manufacturing orders are still rising as inventories remain low, that corporate profits have started to climb, and that consumers continue to spend, spend, spend – all signs that the economy is operating at capacity.

According to the outlook, today’s maladies of high inflation, declining asset prices, rising interest rates, and a turning housing market are symptoms of an economy ‘cooling’ back to normal after being overstimulated by the Federal government during the pandemic, not any fundamental deficiency in the system. Indeed, some of what is happening today is bringing numbers that hit record high levels over the past couple of years, such as stock market values and housing prices, back down to earth.

“Stock markets today are still 15% to 20% above where they were pre-pandemic, and even if home prices fell by 20%, which is highly unlikely, they would still be 20% above where they were before COVID hit,” said Thornberg. “Some of this is a recalibration – we need to recognize that and not panic.”

However, the new outlook’s call for ‘no recession in 2023’ comes with a big caveat: the Federal Reserve. If the Fed continues to raise rates until something truly snaps in the lending markets, they could needlessly drive a downturn, according to the forecast. If, on the other hand, they start to moderate, the economy will likely ride out the bumps caused by inflation and asset price declines and achieve the proverbial ‘soft landing’, meaning that the post-pandemic expansion will continue, but at a slower rate.

“While we don’t see a recession as an assured outcome as many other forecasts have suggested, we certainly acknowledge that bad choices by policymakers in the months ahead could set one off,” said Thornberg. “Today’s economy is indeed fragile and highly susceptible to a large negative shock, such as rapidly rising rates, but that die is not cast yet.”

Additional Key Findings: 

  • In the housing market, there is no debt crisis behind today’s repricing (unlike prior to the Great Recession) meaning it won’t have much of an impact on the broader economy. What happens in real estate will stay in real estate this time around.
  • U.S. households are sitting on over $4 trillion in checking account balances, almost five times as much as pre-pandemic. Consumer demand will remain strong based on wealth effects alone, which will help carry the economy into 2023.
  • Consumers may be starting to indulge in too much new debt, but the rapid interest rate spike will prevent a dangerous build-up.
  • While the overall consumer economy is healthy, inflation causes transfers of real wealth—from savers to borrowers, from those on fixed incomes to those on variable ones—and some households will be hurt.
  • California reached a key milestone in October 2022: The state finally recovered all the jobs lost due to the pandemic-driven shutdowns. Because of its heightened worker shortage, it reached this goal more slowly than the U.S. as a whole and more slowly than many other states. “Typically, there are more unemployed workers in California than there are job openings, but since the outbreak of the pandemic, that status quo has been turned on its head,” said Taner Osman, Research Manager at Beacon Economics and one of the forecast authors. “Today, employers in the state are struggling to hire the workers they need.”
  • Currently, the number of homes that have sold in California stands at around half the level it was in 2021 and is approximately one-third lower than during the years immediately prior to the pandemic.
  • The pandemic has accentuated one of California’s most troubling long-term trends: the divide between coastal and inland regions. Since 2000, the number of housing units in the state’s inland communities has grown at three times the rate of coastal communities; at the same time, inland communities have added jobs at three times the rate of coastal areas.

View the new The Beacon Outlook including full forecast tables here.

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