By Sophia Thé — Guest Writer
San Bernardino County (SBC) attracts millions of visitors and tourists every year. Despite a deadly global pandemic, rising political tension and an unpredictable stock market, SBC tourism has shown ongoing resilience compared to pre COVID-19 life. Interestingly, and given a healthy combination of business mix and ‘drive-to’ destinations, tourism in certain parts of SBC continued to grow despite the pandemic.
As the largest county in the United States, San Bernardino County stretches across the golden state of California from the eastern border of Los Angeles County, through the mountains of Big Bear to the Mojave Desert. Its vast 20,000 mile area is spread across 24 diverse cities in the heart of southern California, and bordered by the states of Nevada and Arizona.
The County includes a balanced mix of leisure, business and group related tourism demand. On the transient side, national parks, music festivals, and destination resorts are coupled with a quickly growing business community that includes pandemic-resilient industries such as logistics, defense, and aerospace. Before the pandemic, Ontario International airport was one of the fastest growing airports in the nation by number of travelers.
Since the turn of the century, San Bernardino County has been growing exponentially in all sectors. Tourism spending reached $5.3 billion in 2018, employing over 55,500 workers, as indicated on the county website. Prior to the COVID-19 Pandemic, SBC hotels occupancy trailed Orange County and San Diego County by only 7% and 5%, respectively, as reported by Smith Travel Research (STR).
The County provides a good example of how focused political leadership can drive positive results. The diversification of business, coupled with ‘drive-to’ accessibility of local resorts, and the strength of the logistics sector powered by the three international logistics airports continued to get ‘heads in beds’. Per STR, when compared to all other SoCal Counties, SBC closed 2020 as the leader in hotel occupancy at 59%, followed by its neighbor Riverside County at 50.8%. Total room revenue in SBC declined 21.5% from 2019, versus San Diego County and Los Angeles County where revenue decreased 53.7% and 52.6%, respectively. Interestingly, while occupancy decreased from 2019, total available room inventory increased by 0.7%.
Freddy Bi, Vice President of Sales and Marketing at Inland Empire Tourism Council, points to proactive local political leadership driving a healthy Chain Segment mix in San Bernardino County as a leading cause for business resilience: “Hotels in the Inland Empire are well positioned, with inventory that is in the economy to upper midscale hotel segments and limited inventory in upper upscale – which enabled the region to absorb the impacts of COVID-19.” Due to the industrial makeup of the region, unbelievable demand in manufacturing and logistics helped to sustain the market, and the reduction in corporate travel was quickly replaced by new demand to house frontline workers in response to COVID-19.”
The pandemic highlighted the unrivaled resilience of the hotel industry in SBC. Recent national press highlighted a consumer shift to outdoor drive-to destinations and, logically thinking, between Joshua Tree, Big Bear Lake, Lake Arrowhead, San Bernardino National Forest, and the Mojave National Preserve there are thousands of miles of fresh air and beautiful landscapes that attract both summer and winter clientele.
According to Visit California Data, from January 2020 to January 2021, customer demand for hotels in the Inland Empire only changed -4.1%, a very small decline when compared to areas like Los Angeles and Orange County that saw -43.5% and -58.6% decreases in hotel demand respectively. The average hotel demand decline in California during this time period is -41.5% These data reveal that not only is San Bernardino doing better, it’s also doing 37.4% better than the rest of the state.
Nevertheless, the reality is not uniform throughout the County. While some cities that depended on convention business saw a double-digit decrease in hotel revenue, STR reported Colton, Redlands, and Hesperia closing 2020 as the top performers with 7.1%, 3.4%, and 3% revenue increases from 2019. As an additional point of interest, Hesperia, a town located at the edge of the ‘mountain path’ and adjacent to Joshua Tree and the Mojave Desert, had its hotels increase Average Daily Rate (ADR) by over 7% from 2019. Even before the pandemic, the economy of Hesperia has been steadily increasing. Per DataUSA, from 2014 to 2018 there was a 17.3% increase in median household income in Hesperia, and a 21.3% increase in median home value. This is just one example of a local community that should be considered by investors given recent data.
Rhonesia Perry, Economic Development, County of San Bernardino and Board Chair for Inland Empire Tourism Council, is proud of the collaborative work that the County, the cities, hotel owners, and tourism stakeholders in the region: “It is a testament to the great community of professionals we have in our hotels and at venues throughout the county that the community was able to pivot and work together; as many individuals in the hospitality industry employed.” While we have a long way to recovery, the numbers speak for themselves on the long term potential that hotel owners and investors have in our region.”
Coincidentally, or maybe not, all SBC cities that performed at or above 2019 hotel occupancy have a strong Opportunity Zone (OZ) presence, which introduces an even higher incentive for investor attraction. According to data provided by Esri, of the more than 2 million residents of SBC, over 330k live in OZs and have a median household income of $35.7k. Approximately 68% of the OZ population is Hispanic origin and 12% are Black, versus the general SBC population which is 55% Hispanic Origin and 8% Black. Another interesting metric is the population median age being 28 in the OZs, vs 33 in the larger County.
The county counts 57 qualified Opportunity Zones census tracts, spread throughout 15 cities and the unincorporated areas. In line with the general County, diversification is a recurring theme in the local OZs as well, with local industries such as cannabis and film production, in addition to world class medical research at Loma Linda and defense production in the high desert. Virgin Train, the Boring Company, Coca Cola, and Blackstone are just some of the companies that invest large checks in local opportunities.
The strength of the local real estate market coupled with a business friendly local government is assumed to result in increased future demand in hotel investment. Unlike many other markets, where the cost to build (replacement cost) per room could be above market average, San Bernardino may remain an attractive place for ground-up construction given the ongoing availability of undeveloped land and access to talented labor. Governor Newsom’s focus on California’s inland counties coupled with the long list of over 300 State and Federal incentives and loans for OZ projects will enable smart investors to leverage the current economy to invest in truly distressed communities, creating good hotel jobs while achieving attractive long-term financial returns.
Contributed by Sophia Thé, Local Equity, an Economic Development Organization specialized in Opportunity Zone Investments, Ontario, California.
Colton Resident Receives Free College Tuition and Books Through Walmart’s Education Program
By Saul Martinez, Contributing Writer for IEBJ
This year marks the five-year anniversary of Walmart’s Live Better U (LBU) education program. Over the past five years, the company has saved associates across the country nearly half a billion in education costs, reflecting the company’s commitment to creating a path for everyone to learn and grow. In California, we’ve seen 5,620 Walmart and Sam’s Club associates participate in Live Better U over the past five years.
One such success story is Robert Gay, who lives in Colton, CA, and earned his college degree – fully paid for by Walmart. Robert was stuck in a stagnant position at his previous company, hindered by the absence of a degree that prevented him from advancing further. However, upon discovering the Live Better U benefits offered by Walmart, he decided to take a leap of faith and join their team with the intention of completing his degree. After successfully graduating with a bachelor’s degree in October 2020, he now takes immense pride in his accomplishment of accepting a promotion to associate general manager. Throughout his journey, Robert received overwhelming support from his local team, who not only empathized with his workload challenges but also aided when needed.
Most individuals typically encounter Walmart through its retail outlets. The Inland Empire Business Journal had the opportunity to explore a consolidation center of Walmart situated in Colton, California. Our visit left us deeply impressed by the remarkable cleanliness and impeccable condition of the facility, almost reminiscent of a high-end showroom.
While on the tour, we observed the diligent measures taken by the leadership to maintain employee motivation and awareness regarding the daily, weekly, and monthly performance Key Performance Indicators (KPIs) of the facility. These KPIs were prominently displayed on digital monitors throughout the premises. The Colton leadership created a mascot and call their team the Colton Eagles.
We found ourselves deeply impressed by this aspect of Walmart, which is often hidden from public view. Walmart unquestionably stands out as a company that not only offers excellent career opportunities but also boasts a remarkable 100% tuition reimbursement program. If you are seeking a career in the Inland Empire, this proves to be an exceptional workplace choice.
Whether someone is chasing their first job or the opportunity that will define their career, Walmart is committed to creating pathways of opportunity for everyone.
The Recession That Didn’t Happen… And Why Most Forecasters Got It Wrong
In arguing that there will be no near-term recession, Beacon Economics has been an outlier in the forecasting community.
Much to the chagrin of those who have been predicting otherwise, the U.S. economy has stubbornly continued to grow—and 2023 is shaping up to be a better year than 2022. Beacon Economics has argued all along that there is little reason to think we are heading for a near-term recession (outside of our worries about the potential impact of Fed policy). It seems as if our optimism is starting to spread. The Economist recently published an article titled Could America’s Economy Escape Recession?, the latest Wall Street Journal recession probability survey (which we contribute to) shows that economists’ expectations of a recession are starting to fade, and Bank of America became the first major forecast group to retract their recession call.
Beacon Economics recession probability rose only slightly in 2022, and our current estimate of a recession occurring in the next 12 months is at 5%, making us an outlier in the forecast community (take a look at the Journal’s survey and you’ll see what we mean). This isn’t to say that we don’t recognize signs of stress in the economy driven by higher interest rates and the recent bout of inflation. Rather, we’ve never viewed these issues as rising to the level of being systemic given that they were caused by the same thing that has kept consumer spending supercharged—the excessive stimulus thrown at the economy during the pandemic.
The greatest risk, as we have seen it, was always the undue tightening by the Federal Reserve, which was implemented in response their original sin of excessive loosening. But the nation has fared even better throughout the large interest rate increases than we thought it would. Now, with inflation cooling, the Fed seems likely to slow their credit tightening efforts, so even this concern is fading.
Admittedly, it is affirming to see our optimism playing out in the trends. But what should we make of this big miss by the broader forecasting community? Paul Krugman, in a recent New York Times column, had one answer—forecasters (at least in the aggregate) just aren’t very good at forecasting recessions. He notes that studies of the history of recession predictions show the forecasting community to be remarkably inaccurate—calling for recessions when they don’t occur, and largely failing to predict them when they do. So much for the wisdom of the crowds. But what Krugman never addresses is the ‘why’. Are forecasters just dumb? As John Kenneth Galbraith famously quipped “[t]he only function of economic forecasting is to make astrology look respectable.” Or is there something else going on?
It might seem surprising that forecasters haven’t learned how to predict recessions better, given the technical tools that have been developed over the past 50 years. The first macroeconomic computer model was built by U-Penn’s WEFA group back in the early 1970’s, winning the group’s leader, Lawrence Klein, a Nobel Prize. Today’s economists have far more computing power at their disposal, not to mention a broader set of quality data to play with. Yet, in the aggregate, forecasters still seem unable to see the arrival of the economic tempest until it is already upon us.
The issue with these big macro models is that they are primarily designed to calculate economic trends on the basis of a complex statistical estimate of covariances found within the historical data. Such models rely on each expansion being similar enough to the previous one that these covariances remain relevant. However, recessions are—by definition—a period when the economy deviates substantially from trend. As such, these sorts of forecast models simply don’t have the capacity to predict a recession, unless the forecaster specifically programs it in.
Those seeking to predict oncoming recessions often look for other sets of statistical leading indicators that can foretell when such a break from the trend could occur. In short, they look for historic patterns of data that seem to correlate with oncoming recessions. As it turns out, there are very few of these kinds of guideposts in the data—something that does not surprise us as we’ll explain in a moment. The one data point that does highly correlate with future recessions—and the one that is surely behind the so-far incorrect call of recession by the forecasting community at large—is the inverted yield curve (The yield curve is the difference between short and long run interest rates. In the past, when short run rates are higher than long run rates, we say the curve is inverted). This statistic does indeed have a good track record, with the five recessions prior to the COVID-19 pandemic all preceded by a negative yield curve. Hence, in July 2022 when the yield curve went negative, many forecasters viewed a recession as fait accompli. Yet, as always, conflating correlation with causation is liable to lead to bad calls.
Beacon Economics noted the inverted yield curve last year, but we did not view it as sufficient or even necessary evidence to predict an economic downturn (We can proudly state that the only two times Beacon Economics has predicted a recession was back in 2006 at the firm’s inception – I left the UCLA Anderson Forecast in 2006 to found Beacon in large part because I thought the real estate bubble would cause a recession upon its collapse, a point of view not welcomed by the UCLA Forecast’s director – and in March 2020 when it became obvious the pandemic had spread globally). More broadly, we do not believe that there is any recession-predicting “magic bullet” to be found in the data—yield curve or otherwise. To understand our view, start with the recognition that recessions are created by rapid changes in the structure of aggregate demand in an economy. The speed of change is faster than factors of production can be redeployed within that economy. The net result is an overall decline in output and an increase in slack resources—a recession. From this vantage point, predicting a recession means predicting the rapid change in aggregate demand. The key to understanding why there is no clear set of recession leading indicators is recognizing that the sources of recessions are highly varied.
Not unlike Tolstoy’s happy and unhappy families, while every expansion is similar to previous ones (this is the reason VAR models are good at predicting trends), every recession is liable to be significantly different from previous ones. There is a broad range of potential causes behind a rapid change in aggregate demand, from various forms of financial bubbles that will eventually pop, to bad government policy choices, to truly random events like global pandemics. Each type of recession driver has its own specific set of leading indicators compared to others. Add the additional facet that people are unlikely to make the same set of bad decisions that led to some economic calamity in the past, making it even less likely that two recessions will have similar leading statistical patterns (This is a version of the Lucas critique, which says once we make a big mistake we are unlikely to do it again, as we should have learned better. This implies that, statistically, the chance of back-to-back recessions looking the same is less than pure probability would suggest). Thus, relying on simplistic indicators will inevitably lead forecasters astray.
To appreciate this issue in the extreme, consider a situation where there can be no true leading indicators. In March 2020 when COVID-19 was spreading rapidly through the United States, it became clear that governments would be enacting strict public health measures to control the spread of the malady, and that these efforts were going to close a large portion of the service sector. It was pretty obvious that the U.S. economy was going to experience a recession, since this is exactly the type of rapid change in aggregate demand that drives recessions. But given the sheer randomness of the emergence of viral pandemics, there simply can be no economic leading indicator.
Of course, most recessions don’t begin so arbitrarily. In 2006 Beacon Economics was the first West Coast forecast to predict what eventually became known as the ‘Great Recession’, a destructive downturn that started in the 1st quarter of 2008. The roots of that recession were manmade in the form of a massive subprime consumer lending surge that started in 2003 and vastly overheated both the housing market and consumer spending. By 2006 it was clear that these imbalances had moved way past the point of no return and the economy would necessarily experience a recession—driven by rapid declines in the housing supply and consumer spending—once the sub-prime bubble inevitably collapsed in on itself. The imbalances were the leading indicators. Yet, we know that these imbalances were different than the ones that led to the tech downturn in 2000 (a stock market bubble combined with excessive business investment) or the 1991 downturn, which was driven by excesses in bank lending and commercial investments.
What all three of these recessions did have in common was the inverted yield curve, including in 2006 when Beacon Economics made its early call of the Great Recession. Ironically, at that time forecasters were more skeptical of this statistical bad omen. One article written at the time from U-Penn, home of the legendary WEFA model, stated that the inverted yield curve “… gave shudders to those who see the phenomenon as a harbinger of recession. And yet, the U.S. economy is strong, and surveys show most forecasters think it will stay that way.” In the first half of 2007 the Wall Street Journal recession probability survey was running 25%, as opposed to the 60% level during the first half of 2023.
Perhaps it was their bad call in 2006/7 that made more forecasters believe the yield curve indicator. Why hasn’t it worked for the current recession predictions? Inverted yield curves are primarily generated by the Fed’s choice to push up short-term interest rates. Back in 2006, short-run rates were pushed higher because the Fed was worried about consumer lending and the housing market. In the 2000 downturn in it was because the Fed was worried about the tech stock bubble. In these cases, the inverted yield curve can be thought of as nothing more than skid marks up to the edge of a cliff, created by a driver who realizes, belatedly, of the approaching danger. In contrast, in 2022, short-run rates were raised because the Fed was worried about inflation. But inflation by itself has never caused a recession. And as for the rest of the U.S. economy, there are no major imbalances as there were in 2006 or 2000. The link between the inverted yield curve and a true recession-causing imbalance in the economy wasn’t there this time.
But there is a deeper issue at play. The types of imbalances that ultimately end up collapsing, and cause recessions, are typically driven by narratives that, at least in hindsight, are clearly false. The tech bubble was driven by the “New Economy” narrative, while the Great Recession was driven by Wall Street’s magical alchemy that pretended to convert subprime debt into safe investments. Nobel Prize winning economist Robert Shiller notes in his book Irrational Exuberance “[h]ow errors of human judgment can infect even the smartest people, thanks to overconfidence, lack of attention to details, and excessive trust in the judgments of others, stemming from a failure to understand that others are not making independent judgments but are themselves following still others—the blind leading the blind.”
The fact is forecasters are human and just as likely as anyone to be swept up in a collective madness of broken narratives. William Bernstein, in his recent book The Delusions of Crowds, writes that the author of one of the earliest analyses of recession-causing bubbles, Charles Mackay, largely failed to recognize the bubble he was living in while writing his book. Mackay’s missive, Extraordinary Popular Delusions and The Madness of Crowds, was first issued in 1841 and examined the South Sea and Mississippi bubbles that had rocked the British and French two decades prior. Yet, he failed to see the crazed trading surrounding railroads that ended up causing massive damage to the British economy in the Panic of 1847.
One could suggest that if a narrative can actually cause a recession, it has to have the capacity to sway forecasters. But such a claim may be justifiably called self-aggrandizing, as it relies on forecasters actually having social and political clout. But, given what we have suggested above, this may well be by definition. In such a world, we have to rely on Warren Buffet’s famous line to be “fearful when others are greedy, and greedy when others are fearful.”
Ultimately, recession forecasts can only be created through a complex interaction of theory and data to identify when and where economic trends become so disengaged from normality as to ensure a recession when the process does eventually begin. Of course, such a determination is full of nuance and subtlety. Beacon Economics made the right call in 2006 because the signs of excess were, at least in our estimation, glaring. We made the right call in 2022 because there were few signs of such excess. We haven’t yet been tested by a less obvious situation. As the disclaimer goes, past results are no guarantee of future returns! Forecasting truly is an art. But I still believe we have a leg up by always keeping in mind not just what the data can tell us, but also what it can’t.
Thriving Without the Status: Local Small Business Owner Shares his Journey as an Undocumented Entrepreneur
By Jessica Anguiano, Southern California Outreach Manager at Small Business Majority and Content Contributor at IEBJ
Alfonso Garcia De Alba Rubio is a proud Mexican national and mechanic business owner in Fontana. His undocu-hustle journey began after he moved to the United States in 2006, with nothing more than a dream, skills in the auto mechanic industry, and a strong work ethic.
His story of perseverance, hard work, dedication, and determination is worthy of admiration. Alfonso is one of California’s estimated 1.1 million undocumented individuals who participates in the workforce. He carved out his career in mechanics and car transmissions and started from the bottom up–literally and figuratively. His business started out of a restroom, but he quickly recognized a gap in the market for his services. His customers encouraged him to start his undocu-hustle, a practice that motivates and inspires new entrepreneurs to launch their businesses despite not having legal immigration status.
He shares, “Eventually, I was able to rent a garage space that catapulted my budding business, even if it came at a high cost.” In fact, half of his revenue went toward covering rent expenses at the garage. But just three years later, Alfonso managed to save enough money to start his own shop, where he felt a new sense of economic independence that allowed him to expand his business. Although he encountered challenges in obtaining the necessary paperwork to launch a legitimate business, he persevered and continued on his entrepreneurial path.
Like many other entrepreneurs, Alfonso operated his business through sheer determination and hard work. Despite not being able to qualify for emergency funding or state and government assistance at the height of the pandemic, he has managed to keep his business afloat and continue employing people in his community.
He says, “Regardless of what some might say, I am here to create opportunities and not take jobs.” Immigrant entrepreneurs have continued to encounter myriad challenges in their journey to business ownership, and access to capital is one of their top challenges. But their contributions to our nation and our economy are what keep us thriving and innovating, and we are better for it.
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