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Economy

This is how our economy can survive the pandemic

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Economist Gloria González-Rivera offers insight on how to limit damage

Thursday, April 23rd, 2020 | 11:12 am

With the Covid-19 pandemic wreaking havoc on the economy, we’re all hoping for a quick recovery.

But it might take a while, explains Gloria González-Rivera, a professor of economics at the University of California, Riverside. González-Rivera received her doctorate from the University of California, San Diego, where she wrote her dissertation under the supervision of 2003 Nobel Laureate Professor Robert F. Engle.

Gloria González-Rivera

Her research focuses on the development of econometric and forecasting methodology with applications to financial markets, volatility forecasting, risk management, and agricultural markets. One area of particular interest is predicting and limiting the economic damage of rare natural and human-caused events. Here, she offers insight on how we might find our way out of the current crisis.

According to the New York Times, the International Monetary Fund issued a warning that “the world is facing its worst downturn since the Great Depression.” What is your reaction to this?

These predictions assume mitigation measures will work, the virus will be contained to some extent, and we will not face another relapse.

The economic models on which these predictions are based also do not account for the psychology and fear of people, which will certainly affect their behavior.

For example, the unemployment numbers are staggering. In the U.S., 22 million jobless claims in four weeks is unprecedented in the postwar years. These are numbers similar to those of the 1929 Great Depression. It is especially hard for younger generations coming out of college and looking for their first job.

For the American economy, where two-thirds of gross domestic product is consumption, consumers are key to recovery. If consumption does not come back to pre-crisis levels, the economy will be in recession for a long time. Stimulus measures like the $2 trillion package approved by Congress are geared to provide some income to consumers and small businesses, so they keep on consuming and operating. However, how and when consumers decide to spend their income is the key to cushion the drop in output growth.

Fear is a powerful decision-maker, but decisions are not always in the right direction. People will become more conservative with their money. Those who can will save more and consume less. More savings and less consumption now will lead to a deeper recession in the months ahead.

Which sectors of California’s economy are most at risk?

The economic landscape of California is a mix of critical and not-so-critical sectors, but in either case, it is highly dependent on the migrant population and supply chains located overseas. The largest economic engines are technology/biotechnology, agriculture, entertainment/tourism, construction, and logistics, plus all the services generated by these activities. Technology and agriculture provide essential goods and services, and either by federal and state policies or by human ingenuity, will be necessarily open.

The sectors at risk now are tourism and the hospitality industry because they depend on the discretionary income of households. Consumers, even after the pandemic is over, will be reluctant to spend as they did in the pre-pandemic months.

What are some things the federal government can do to limit the damage to our national economy? 

The federal government and the Federal Reserve are providing massive aid to the economy. We have a combination of fiscal and monetary policy that has worked in previous crises, and it is working now. The $2 trillion stimulus package approved by Congress provides relief to individuals, small businesses, some industries, and state governments. The Federal Reserve provides liquidity by buying the debt — Treasury bonds and government-backed mortgage bonds — that will finance the stimulus package. Basically it is pumping cash into the economy through the financial system.

An open question now is whether the $2 trillion package will be sufficient, or will we need another round of stimulus. It is very likely we will need a second round of stimulus providing additional funding to small businesses to restart their activities and an extension of unemployment benefits.

What can our state government do to limit the damage to California’s economy?

Most importantly, in the short term, the state can guarantee the health of our population by making sure we have enough protective gear, managing hospital capacity, and providing widespread testing. It is also very important that for the unemployed, either self-employed or employees, the state government provides access to all benefits offered by federal programs, not only to traditional unemployment benefits but also to the program known as Pandemic Unemployment Assistance. For small businesses to survive, it is also necessary to provide access to loans and lines of credit.

Our government should follow the advice of the experts, public health officials, and economists, for a gradual opening of the economy, and offer legal protection for those undocumented populations who are vital to the agricultural sector and in other services.

How do you envision the path to long-term recovery? 

It will depend on the evolution of the virus. If we were to have therapeutics and a vaccine in place early, the recovery would be relatively fast. The sooner we open the economy, the less damage to the economy. But as we are told by the health experts, the vaccine will take more than a year. The strategy is to achieve a balance between protecting the health of the population and reactivating gradually the economic engine. Thus, the recovery will be slow by design.

The government has a key role in supporting the short and long terms. This crisis has made evident the cracks in our health system and revamping this sector will help to sustain long-term recovery. More long-term investments, big projects sponsored by the government, could provide further stimulus over the long haul.

This pandemic has shown how intimately the world’s economies interconnect, and the devastating consequences of economic destabilization. How can we prepare for future pandemics?

This pandemic is questioning the meaning of “globalization,” and the organization of the world economy could be very different after the pandemic subsides. We may think of relocating some strategic supply networks to the U.S., so we become less dependent on other nations. We may think of designing strategic and resilient long-term plans for firms, so they are able to face any future crisis. This “looking inward” behavior will surely affect global trade, likely making some goods more expensive for consumers. But it will be a relatively small price to pay if, in the long run, the economy is more robust to these horrific shocks.

Do you see opportunities for positive changes?

I am sure technical and medical innovations will save the day, but given the human toll of this pandemic, we should not forget social innovation. How do we want to organize ourselves as a society? What are the strategic sectors for the survival of a nation? What values should we bring to our organizations and employees? What principles should we instill on our youngest?

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

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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