Connect with us

Economy

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

Published

on

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

Slow Growth Forecasted for California’s Major Metros…But No Recession; Consumer Spending Expected to Keep Local Economies Humming

Published

on

Modest Price Declines Expected In State’s Famously Expensive Housing Markets

California’s major metropolitan regions will weather any national headwinds caused by the recent banking crisis and are all expected to see employment grow and consumer spending continue for the rest of the year, according to new regional outlooks released today by Beacon Economics. Almost without exception, consumer and business sales tax receipts have grown significantly compared to pre-pandemic levels in the state’s largest urban areas.

“We expect consumer and business spending to carry the day in the near term for these local economies,” said Taner Osman, Research Manager at Beacon Economics and one of the outlook authors. “Despite bearish headlines about bank runs and tech industry layoffs, spending continues to trend above pre-pandemic levels in California’s metro areas.”

Since the 1st quarter of 2020, sales tax receipts have jumped in San Diego (+32.3%), the South Bay (+29% in San Benito County, +17.6% in Santa Clara County), the East Bay (+26.1% in Alameda County, 23.6% in Contra Costa County), and Los Angeles (+25.1%). Statewide, receipts have increased nearly 30%. Only San Francisco has seen a decline (-1.5%) in its business and consumer spending, albeit a minimal one. The new outlooks note that the fall off in San Francisco aligns with weak tourism and air travel data, which indicate that passenger counts through San Francisco International are down nearly 30% from pre-pandemic levels.

The ongoing spending spree across the state’s metros is being driven and bolstered by steady gains in payrolls, according to the new outlook. Indeed, in each of the five regions analyzed, the local unemployment rate has fallen back to a low pre-pandemic level and employment is inching towards an all-time high. Moreover, the forecast has job growth increasing by between 1% and 2.5% in all five metros throughout the remainder of 2023. “Overall, we’re expecting to see slow but steady employment growth across the state’s metros this year… and no recession,” said Osman.

In other findings, the new outlooks are forecasting only modest price declines in the housing markets of California’s major metropolitan areas over the rest of this year. While rising interest rates have taken a toll on the local markets, making mortgages more expensive and sidelining would-be homeowners, there has been little relief in terms of badly needed housing production. “The extremely limited inventory of homes for sale restricts how much prices will fall, with some areas only seeing a deceleration in price growth, not actual drops,” said Osman.

As of February 2023, on an annual basis, only in exorbitantly high-priced San Francisco did the median home price fall markedly, by 10.7%. In the other Bay Area metros, price decreases were more moderate, including a 3.5% decrease in the East Bay and a 0.3% and 5% decrease in the two counties of the South Bay. In Los Angeles and San Diego, price growth decelerated but prices continued to rise year-over-year (+1.8% in San Diego, +0.8% in Los Angeles).

This edition of The Regional Outlook was authored by Osman and Senior Research Associate Justin Niakamal.

View full outlooks for the East Bay, Los Angeles, San Diego, San Francisco, and South Bay.

Continue Reading

Banking & Financial Services

All Eyes On The Fed… But Will It Change The US Forecast?

Published

on

Federal Reserve Policies At The Root Of Recent Bank Collapses; California: A Better Recovery Than We Thought!

The recession forecasted by so many still hasn’t shown up and is looking less and less likely to anytime soon, according to Beacon Economics‘ latest outlook for the United States and California. Moreover, the recent bank failures that have been capturing headlines are being ‘wrongly viewed’ as heralding a coming downturn, something that misses the actual drivers behind the collapses and that key economic data refutes.

“These bank failures are not a reflection of an unhealthy U.S. economy, they are all about Federal Reserve policy,” said Christopher Thornberg, Founding Partner of Beacon Economics and one of the forecast authors. “Sad by true; the body that is supposed to be the wise shepherd of the nation’s banking system is largely responsible for creating the very stressors that caused Silicon Valley Bank to fail, and the run on others to begin.”

According to the outlook, the U.S. banking system, overall, is the victim of quixotic and rapid changes in Fed policy over the last three years as they have tried to maintain both full employment and price stability – which can be mutually exclusive. “In their existential panic over full employment during the pandemic, the Fed destabilized prices by injecting historic amounts of cash into the economy; in their existential panic over price instability, they destabilized the banking system through interest rate increases,” said Thornberg.

The new outlook acknowledges that the sudden crosscurrents from the bank failures have made the forecast fuzzier because stress in the banking system will eventually show up in the broader economy in the form of tightening credit. However, the new forecast does not believe those stressors, on their own, will rise to the level of a recession. “Cash is still king in the U.S. economy,” said Thornberg. “But if the Fed decides to continue raising interest rates in its quest to slow inflation, it will do more damage to the bank credit industry and that will trigger negative consequences for the overall economy.”

Assuming the Fed slows their roll, which they’ve shown some signs of doing, Beacon Economics is expecting slow growth and no recession in the near-term future. The forecast has real U.S. GDP growth in the first quarter coming in between 1% and 2%, although the margin of error has increased given the policy uncertainty.

In terms of the macro economy, the new outlook points to copious evidence of its health: unemployment in the nation remains rock bottom, consumer spending continues despite inflation, earnings growth is still running above 6% for the median worker, U.S. household net worth remains 30% ($30 trillion) higher than it was pre-pandemic, banks are not experiencing an increase in problem loans, and interest rates have started to stabilize causing asset markets to do the same.

In California, the news grew rosier this month after the state released its annual employment revisions, although a declining workforce continues to hamper economic growth. The revision shows that California recovered more and faster from the pandemic’s job losses than previously estimated: There are 197,000 more people employed in the state today than there were pre-pandemic. The original estimates had the gain at a mere 70,000.

However, in terms of the percentage increase, California’s job growth has been about five times slower than states such as Florida and Texas. “The underperformance we’ve seen is certainly not due to any unwillingness on the part of the state’s employers to hire workers,” said Taner Osman, Research Manager at Beacon Economics and one of the forecast authors. “Rather, California’s labor force contracted during the pandemic and there are well over 300,000 fewer workers in the state today than there were before COVID hit; there are simply not enough workers to fill the number of job openings.”

Deeply linked to its declining workforce is California’s famously expensive housing market, where prices surged an astounding 41% during the early days of the pandemic. Today, higher interest rates have led to a collapse in demand and home sales have returned to their pre-pandemic trough. However, home prices remain 27% above where they were pre-pandemic and the new forecast only expects them to fall by 6.3% in 2023. “Given California’s acute long-term housing shortage, it’s not surprising that price drops will be limited,” said Osman. “And this isn’t anything like the Great Recession because consumer balance sheets are so much stronger today and unemployment rates are at all-time lows.”

Continue Reading

Career & Workplace

Annual Employment Revision Changes Our Understanding of California’s Recovery From the Pandemic

Published

on

State Recovery Has NOT Lagged The Nation; California Recovered More And Faster Than Originally Estimated

The annual benchmark revision released today by the California EDD has significantly changed our understanding of California’s recovery from the pandemic, according to an analysis by Beacon Economics. While employment figures from 2022 were revised downwards, 2021’s figures were revised upwards, and in total, the state added far more jobs than originally estimated.

“The revisions have painted a rosier picture of California’s labor market recovery than previous estimates suggested,” said Taner Osman, Research Manager at Beacon Economics. “Importantly, given the contraction in the state’s labor force since the start of the pandemic, the job growth that has occurred is partly due to an expansion in labor force participation.”

Overall, employment growth in the state from December 2021 to December 2022 was revised from 3.6% down to 3.1%, while growth from December 2020 to December 2021 was revised from 6.5% up to 7.7%.

Previous estimates suggested that California had only added 70,000 jobs compared to its pre-pandemic level, while the revisions reveal the state has actually added 197,000 jobs. This means that payrolls as of December 2022 are 1.1% above their pre-pandemic peak, compared to the 0.4% originally estimated. While previous estimates showed the recovery in California as lagging the nation overall, today’s revisions reveal that the state has recovered at roughly the same pace.

The revisions also mean that California recovered the nearly 2.8 million jobs it lost due to the pandemic in June 2022, rather than October 2022, as originally estimated.

Growth in the state’s 2022 labor force was also revised downwards significantly. From December 2021 to December 2022, only 128,700 workers joined the labor force in California, far fewer than the 276,800 originally estimated. This translates into a 2022 labor force growth rate of 0.7% rather than the original estimate of 1.5%. However, at the same time, 2021’s labor force growth rate (from December 2020 to December 2021) was revised from 1.5% up to 2.2%.

At the industry level, the annual benchmark revision was mixed, with growth rates in some sectors were revised upwards, while others were revised downwards. The biggest upward revisions to year-over-year growth rates (December 2021 to December 2022) were in Mining and Logging (revised from 0% to 3.6%), Real Estate (revised from 2.8% to 3.2%), Health Care (revised from 4.7% to 5.0%), and Professional, Scientific, and Technical Services (revised from 4.1% to 4.2%).

The biggest downward revisions in year-over-year growth rates were in Finance and Insurance (revised from 1.0% to -0.9%), Construction (revised from 4.6% to 2.7%), Government (revised from 1.8% to 0.4%), Transportation, Warehousing, and Utilities (revised from 3.8% to 2.9%), Wholesale Trade (revised from 2.2% to 1.3%), Education (revised from 7.0% to 6.4%), Retail Trade (revised from 0.8% to 0.2%), and Leisure and Hospitality (revised from 7.7% to 7.2%).

California’s annual benchmark revision was also mixed at the regional level, with growth rates revised up in some areas and down in others. The largest upward revisions in year-over-year growth rates were in Yuba (revised from -0.6% to 4.1%), Napa (revised from 1.8% to 5.8%), El Centro (revised from 1.8% to 4.9%), Madera (revised from 2.4 to 4.6%), San Rafael (MD) (revised from -1.0% to 1.1%), and Modesto (revised from 0.9% to 3.1%). Downward revisions occurred in Santa Barbara (revised from 4.0% to 1.0%), the Inland Empire (revised from 4.9% to 2.7%), Ventura (revised from 4.1% to 1.9%), Merced (revised from 3.3% to 1.7%), San Francisco (MD) (revised from 5.3% to 3.8%), and Chico (revised from 2.6% to 1.6%).

 

January Numbers

California’s labor market expanded in January, with total nonfarm employment in the state growing by 96,700 positions over the month. “Despite all the headline gloom about the state of the economy at present, California’s economy added more jobs in January than it has in any month since February 2021,” said Osman.

As of January 2023, California has recovered all of the jobs that were lost in March and April 2020, and there are now 293,900 more people employed in the state compared to February 2020. Total nonfarm employment has grown 1.7% over this time compared to a 1.8% increase nationally. California also increased payrolls by 3.5% from January 2022 to January 2023, outpacing the 3.3% increase nationally over the same period.

California’s unemployment rate increased by 0.1 percentage point, to 4.2% in January 2023. While this rate is near historic lows, it remains elevated relative to the 3.4% unemployment rate in the United States overall. California is continuing to struggle with its lack of labor supply, although the workforce did grow by 44,700 in January. Since February 2020, the state’s labor force has fallen by 283,600 workers, a 1.4% decline.

Industry Profile  

  • While employment levels in nearly half of the sectors in California now exceed their pre-pandemic peaks, employment levels in the hardest hit sectors remain below their pre-pandemic levels.
  • The Government sector led gains in January, with payrolls expanding by 46,000. However, Government payrolls are still 2.3% below their pre-pandemic peak.
  • Other sectors posting strong gains during the month were Leisure and Hospitality (20,800), Retail Trade (10,200), Health Care (9,600), Professional, Scientific, and Technical Services (9,400), Transportation, Warehousing, and Utilities (6,700), and Wholesale Trade (3,000).
  • Payrolls decreased in a handful of sectors in January. Construction posted the largest decline, where payrolls fell by 7,300. However, the decline in Construction payrolls was largely weather related. Other sectors with significant job losses were Information (-5,000), Real Estate (-4,600), and Administrative Support (-700).

Regional Profile

  • Regionally, job gains were led by Southern California. Los Angeles (MD) experienced the largest increase, where payrolls grew by 37,300 (0.8%) during the month. San Diego (8,700 or 0.6%), Orange County (5,300 or 0.3%), and the Inland Empire (5,300 or 0.3%) also saw their payrolls jump during the month. Over the past year, El Centro (4.4%) saw the fastest job growth in the region, followed by San Diego (4.2%), Orange County (3.5%), Los Angeles (MD) (3.4%), the Inland Empire (2.8%), and Ventura (1.6%).
  • In the Bay Area, the San Francisco (MD) experienced the largest increase, with payrolls expanding by 8,900 (0.7%) positions in January. The East Bay (7,900 or 0.7%), San Jose (5,100 or 0.4%), Santa Rosa (1,100 or 0.5%), Napa (300 or 0.4%), and Vallejo (100 or 0.1%) also saw payrolls expand during the month. Over the past 12 months, Napa (5.5%) saw the fastest job growth in the region, followed by San Francisco (MD) (4.3%), San Jose (4.2%), Santa Rosa (3.6%), Vallejo (2.5%), and the East Bay (2.1%).
  • In the Central Valley, Sacramento experienced the largest monthly increase as payrolls expanded by 3,900 (0.4%) positions in January. Payrolls in Merced (1,000 or 1.4%), Chico (500 or 0.6%), Fresno (500 or 0.1%), Modesto (500 or 0.3%), Stockton (400 or 0.1%), and Madera (200 or 0.5%) increased as well. Over the past year, Madera (4.5%) saw the fastest growth, followed by Yuba (4.3%), Hanford (4.2%), Fresno (4.0%), Visalia (3.6%), Stockton (3.4%), and Sacramento (3.0%).
  • On California’s Central Coast, Santa Barbara added the largest number of jobs, with payrolls increasing by 2,200 (1.1%) during the month. Salinas (900 or 0.6%) and Santa Cruz (600 or 0.6%) saw payrolls decline during the month. From January 2022 to January 2023, San Luis Obispo (3.1%) added jobs at the fastest rate, followed by Santa Cruz (2.9%), Salinas (2.5%), and Santa Barbara (2.3%).
Continue Reading

Business Journal Newsletter



Advertisement

Trending