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Annual San Bernardino County Economic Outlook Sees Heated Growth In Near-Term Future; Labor Market Remains A Key Stumbling Block

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Downtown Revitalization: ‘A Major League Region With a Minor League Downtown’

By Kristin Lansdown, Editor at IEBJ

The diminished economic effects of the pandemic are becoming increasingly evident across California and the nation as businesses fully reopen and consumers return to activities that have been on hold for over a year. Still, the vigorous growth happening in many parts of the economy stands in sharp contrast to the experience of some workers and industries that still have a sustained climb out of the pandemic-driven crater they fell into.

A new report shines a bright light on the robust but somewhat uneven trajectory the recovery has taken in San Bernardino County. 

Released at the 5th annual San Bernardino County Economic Forecast Conference, the report, finds that the County’s housing market is booming and much of its taxable sales and business activity surging – all against a backdrop of shrinking COVID-19 cases and rising vaccination rates. 

Similar to other regions, housing emerged as the brightest spot in the County’s economy last year and is flourishing in 2021. From the first quarter of 2020 to first quarter of 2021, the median single-family home price in San Bernardino County soared 18%, stronger than in Los Angeles (17.8%), Orange (12.2%), and San Diego (15.4%) Counties, although behind Riverside County (21.4%). 

“The driving pressure here is clear cut – demand for housing has increased markedly but supply has not,” said Taner Osman, Research Manager at the UC Riverside School of Business Center for Economic Forecasting and one of the report’s authors. “It’s an intensely competitive period where offers have soared far above asking prices and buyers are waiving inspections and other contingencies to get a leg up.” However, if fears of inflation are realized, mortgage rates are also likely to jump, which could sap some of the momentum from the market, said Osman.

Broadly, despite the recent price increases, the Inland Empire remains one of the last relatively affordable housing markets in Southern California, which bodes well for long term growth, according to the report.

Looking across the Inland Empire, commercial real estate has displayed more of the unevenness that has characterized the pandemic recession. While demand for office and retail space has fallen over the past year, as e-commerce spending has surged, warehouse properties have become hotter commodities. The vacancy rate among warehouse properties in the Inland Empire fell to 9.7% in the first quarter of 2021 even as 10 million square feet of new space was added to the region’s available stock. At the same time, asking rents increased, albeit modestly. 

The weaker performance in the economy, both in San Bernardino County and across the state, comes from the labor market. The County has only recovered about 60% of the jobs lost due to the pandemic’s health-mandated closures and restrictions, according to the report. The largest losses continue to be in the battered Leisure and Hospitality sector, which was turned on its head both locally and across the globe. However, with businesses returning to normal operations, this and other damaged sectors such as Retail Trade, Government, and Manufacturing, should experience significant job gains as companies ramp up production to meet surging consumer demand in the coming months. 

In addition to the local outlook, the forecast conference also included a deep dive into the future of downtown San Bernardino and how insight-driven economic development can propel the creation of a revitalized, modern, and successful downtown. Presenter Patrick Adler, who is Manager of Sustainable Growth and Development at the Center for Forecasting, highlighted the fact that San Bernardino, despite having a population twice the size of a city such as Milwaukee, lacks the kind of dynamic, vibrant, and centralized urban core that comparative areas have established. 

Calling San Bernardino, a ‘major league region with a minor league downtown’, he argued that the city needs to jumpstart a downtown renaissance by recruiting anchor firms and housing developments to the downtown core. “Once San Bernardino achieves minimal density in the core, the city will be able to market itself as a destination for visitors and residents alike,” said Adler.

Presented by the Inland Empire Regional Chamber of Commerce, the 5th annual San Bernardino County Economic Forecast Conference: Back To Business, was held on June 24th at The Enterprise Building in San Bernardino. The event convened government and business leaders from across the region and beyond.

The Inland Empire Business Journal (IEBJ) is the official business news publication of Southern California’s Inland Empire region - covering San Bernardino & Riverside Counties.

Economy

An Uneven Expansion and Bounce Back for California’s Creative Economy

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New Analysis Tracks Performance of State’s ‘Creative’ Industries Before, During, and After COVID, Revealing Longer-Term Direction

The economy that houses industries such as entertainment, media, fashion, and fine arts in California has weathered the pandemic and, as a whole, done better in its recovery from the COVID-driven recession than the overall economy, according a new analysis released today by the UCR School of Business Center for Economic Forecasting and Development.

The study, Shock and Roll: California’s Creative Economy from 2015-2021, examines trends in the state’s creative industries prior to, during, and following the pandemic recession, finding that the Creative Economy has added a total of 70,064 jobs since 2015 and appears to be bouncing back to its 2019 pre-pandemic peak. Additionally, the Creative Economy workforce in California grew 8% over the study period, significantly faster than the overall workforce.

Even more impressive has been wage growth. On average, in California’s Creative Economy, per worker wages have increased a spectacular 40% since 2015. Wages among Creative Economy workers were already relatively high in 2015 at 1.8 times the average California worker wage, but by 2021, the average worker wage in the Creative Economy was 2.35 times higher. Indeed, Creative Economy wages started higher and accelerated during the pandemic, even outstripping today’s historic inflation.

“California is a global epicenter of the Creative Economy, and its industries are an engine of growth for the state and its workers,” said Dr. Patrick Adler, Research Manager at the Center for Economic Forecasting, and one of the report’s authors. “By looking at conditions and trends that were in progress before the pandemic as well as changes since, we’re able to put the COVID shock in proper context; our main finding is that the 2020 disruption did not throw the Creative Economy off its previous gains.”

The report’s topline analysis comes with a critical caveat: Many different sectors, producing widely different kinds of products, make up the Creative Economy – and the findings indicate that both longer-term performance, and the more recent recovery from the pandemic, varies considerably from sector to sector with some soaring and others declining.

The Media sector, which includes Digital Publishing, is the true stand out the sector that keyed Creative Economy growth in the 2015-2021 period. Media currently makes up 31.2% of all Creative Economy employment in the state and accounts for over half (53.3%) of all the Creative Economy wages paid. By themselves, Digital Publishing industries have added 125,885 jobs since 2015 and, counter to macro trends, added 12,216 jobs during the pandemic period alone.

The Architecture and Related Services sector is the only other major creative sector that had more jobs in 2021 than in 2015; all the others have lost employment since 2015. Unsurprisingly, Fine Arts and Performance was hit hardest by the pandemic, given health mandated restrictions on group activity, and Fashion stands out as the one sector that has been in almost steady employment decline since 2015.

California Creative Economy Employment Change by Major Subsector: 2015-2021

The analysis is part of the Center for Economic Forecasting’s ongoing research about California’s Creative Economy, its industry sectors, and workforce. Amid the angst of the pandemic and its economic effects, Adler and his fellow authors hope that providing clear diagnostics that reach back well before the COVID-19 crisis, as well as during and after, will inform long range economic and workforce development efforts within the creative industries. “There is an important, broader context that shows us certain industries were headed one way or another before the pandemic,” says Adler. “The state’s leaders ought to be thrilled with the long-term dynamism in Digital Publishing, and more concerned by declines in Entertainment and Creative Manufacturing.”

The report is accompanied by an online appendix containing a variety of graphs, figures, and maps that provide additional, drilled-down detail.

The complete analysis is available here. The appendix is available here. 

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Economy

Job Recovery in California’s Major Metros Still Lags Other Areas; Transition from Recovery to Expansion Expected by Early 2023

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Collapsing Inventories Will Keep Upward Pressure on Home Prices in State’s Notoriously Expensive Urban Housing Markets

California’s major metropolitan regions have continued to recover the jobs lost during the pandemic-driven recession although, with one exception, they are still lagging the state and nation. A new analysis released today by Beacon Economics spotlights steady job gains in five of the state’s largest metros but also illustrates the ground that these urban cores need to make up to reach pre-pandemic levels of employment.

From best performing to worst, San Diego County payrolls now stand 2.2% below their pre-recession peak, the South Bay/Silicon Valley comes in 3% below, Los Angeles 3.8%, the East Bay/Oakland 4%, and San Francisco 4.7% below peak. All of the metros except San Diego are trailing California’s statewide jobs recovery, now 2.8% below peak, and all are trailing the nation as a whole where payrolls are 1.8% lower than they were prior to the COVID-19 crisis.

“With health-mandated restrictions pretty much lifted, and with relatively high vaccination rates in the state, the major headwinds to employment growth have largely faded and we expect each of these major urban centers to reach or surpass pre-pandemic job levels by early 2023,” said Taner Osman, Research Manager at Beacon Economics and one of the report authors.

The analysis also examines the red-hot housing markets in California’s large metros, forecasting that home prices will continue rising in the near-term future even though high demand throughout the pandemic has essentially collapsed already tight housing inventories. “A lack of housing supply was a real dilemma in California long before COVID, but the changes the pandemic brought about in terms of wealth, work routines, and consumer preferences has intensified the problem,” said Osman.

According to the analysis, increasing mortgage interest rates, as well as limits on affordability, will cool price growth from the historic double-digit surges that have been occurring in the state’s major metros over the past several years, but none of the five areas studied will see price declines any time soon.

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Business

Excessive Stimulus ‘Dangerously’ Overheating the U.S. Economy; Near Term Forecast Still Strong But Long Run Instabilities Loom

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Home Price Surge Intensifying California’s Workforce Shortage

The 3rd quarter’s real U.S. GDP growth rate disappointed many observers and set off calls to continue various Federal government stimulus programs, or at least slow their reduction. However, a well-regarded economic forecast argues that there is nothing intrinsically worrisome about the 2.1% GDP growth rate (in the nine years leading up to the pandemic, the U.S. economy grew at this same pace or slower for 16 out of 36 quarters) and that over stimulus is now the real threat to the economy.

According to Beacon Economics latest outlook for the United States and California, the U.S. economy has recovered from the pandemic recession, which ‘officially’ ended in May 2020 (peak to trough), and is now becoming dangerously overheated as a result of excessive stimulus – triggering today’s hyperinflation, labor shortages, and severe supply chain disruptions.

“In a normal year, this rate would be applauded as a solid growth trend, but because job numbers and real economic output are still lower than they would have been had the pandemic not happened, we’re hitting the panic button,” said Christopher Thornberg, Founding Partner of Beacon Economics and one of the forecast authors. “Numerous metrics combine to constitute an economic recovery and so many are currently at red hot growth levels that continuing to pump stimulus into the economy in an effort to chase down raw job counts and domestic output will do more harm than good.”

According to the new analysis, job and output numbers are not the sole, and sometimes not even the most important, metrics in terms of economic recovery after a recession. The outlook points to a host of key indicators that are overheated or flourishing including consumer spending, government spending on public services, business investment, real estate markets, personal wealth and earnings… and job opportunities. While there are 4 million fewer payroll jobs in the United States today (2.6% less than pre-pandemic), there are 10 million job openings – a result of record high retirements and quitting. The nation’s unemployment rate has also fallen to 4.2%, just 0.7 percentage points higher than its pre-pandemic low, which was itself one of the lowest in U.S. history.

“The real problem in today’s jobs market is the 3-million-person decrease that has hit the U.S. labor force; it isn’t normal,” said Thornberg. “We’ve been facing a looming labor shortage for years, driven by basic demographics, but the excessive stimulus has hastened the process and we need to step off the accelerator.”

Many parts of California’s economy have also returned to pre-pandemic levels, but like the nation, the state is challenged by a diminished labor force which has led to a severe shortage of workers. According to the outlook, California’s labor force has 414,700 fewer workers than it did pre-pandemic.

“The state’s shrunken workforce has emerged as the biggest constraint on future employment expansion,” said Taner Osman, Research Manager at Beacon Economics and one of the forecast authors. “Although Governor Newsom has just reinstated a statewide indoor mask mandate, restrictions on business activity have been removed for months and are not the main driver of California’s labor market issues – worker supply is.”

There are still 5% (900,000) fewer jobs in California than there were prior to the pandemic, compared to 2.8% fewer jobs nationally. In some other states, the number of jobs has exceeded pre-pandemic levels.

The underlying issue that is most exacerbating California’s struggle to attract and retain the workforce it needs, is the price of housing. In the third quarter of 2021, California’s median home price surged to $651,383, compared to the national median of $404,700. “That kind of price disparity is bound to have a major impact on where workers choose to live, most especially lower-income workers who are impossibly strained in California’s housing environment,” said Osman. The new outlook is forecasting home prices in the state to steadily climb throughout 2022.

Overall, the near-term economic forecast in both the United States and California boils down to a strong run over the next couple of years (with labor supply being the biggest constraint), but with long-term storm clouds on the horizon. U.S. GDP is forecast to grow by 5.3% in the 4th quarter, falling to a more sustainable 3.7% in the 1st quarter of 2022.

View The Beacon Outlook here.

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