Central Coast Economic Forecast:

Uneven Recovery to Continue Marking Region as it Hangs on During COVID 

Parts of the Central Coast economy — dominated by tourism, leisure/hospitality, and seasonal farming — will continue trailing other regions as the area recovers from the COVID-19 recession. However, even as Santa Barbara and Ventura counties recover faster than the San Luis Obispo/Monterey and Santa Cruz regions, hints of silver linings are popping up for the entire coastline.

That’s according to the most recent forecast presented and published by experts from Beacon Economics during the annual Central Coast Economic Forecast event. These expert opinions spotlight intriguing viewpoints, trends, and projections so your credit union can plan appropriately. 

‘Central Coast Economic Forecast’ (annual event)
Presented Sept. 18 by Beacon Economics (To “V” or not to “V”: The COVID Recession — Where Next?):

Click here to view the full slide presentation.

The most difficult part for the Central Coast is that retail, restaurant, and tourism sectors of the economy will continue lagging. The local labor markets for these industries will be in transition longer than many expected due to a confluence of state and local government social-distancing policies and weekly test-positive case rates of the COVID-19 virus. Before the pandemic hit the area and the state of California, housing inventory and home affordability problems were negatively impacting Central Coast workers and households. Back then, jobs were in plenty and worker-demand was high (and it still is for very select businesses and workers); but producing higher-paying jobs and lower-cost housing was the region’s main problem for several years. That issue hasn’t gone away — it is only exacerbated in a COVID-19 economy.

As California’s economic recovery continues to slowly brighten over time, the Central Coast’s economy will come back — although it may look different than before the COVID-19 crisis. Leisure and tourism are expected to make a comeback, but maybe not to prior levels. The local economy is in a long transition right now and will be stuck there longer than other regions to the north and south due to its high dependence on the hospitality sector. Wildcards for the economy in general include a “true” second round of COVID-19 virus outbreaks, a full shutdown similar to earlier this year, and other issues such as global risks, the timing of air travel/traffic to start rising again, and difficult local government budgetary decisions over the next few years. The speed of economic recovery is dictated by the pace at which the virus gets under control, and societal behavior (not public policy) is at the real center of the issue.

Certain residents and businesses along the Central Coast may feel more pain before they start seeing light at the end of a long tunnel. If the state and national economic recovery is very uneven, then it’s even more so for the Central Coast. U.S. Gross Domestic Product (GDP) — having dropped a negative 5 percent and 32 percent in the first and second quarters of 2020, respectively) — will probably post a healthy positive 26 percent and 8 percent in the third and fourth quarters of this year. That’s not fast enough for some critics, but it’s actually better than the dire projections some were predicting at the beginning of the summer.

The Central Coast’s unemployment rate is expected to remain noticeably higher than California’s and that of the United States as well. As local unemployment rates everywhere continue dropping into late 2020 and early 2021, many Central Coast localities will not keep up the same downward pace (perhaps the northern half versus the southern half). By year’s end, the U.S. unemployment rate (8.4 percent by late August but falling every week) will be somewhere from 6.5 – 7 percent as its downward drop slows down and more workers re-enter the labor force (those willing and able to work) from being laid off or sent on furlough. The Central Coast’s unemployment rate (currently ranging from 7.8 – 9.4 percent depending on the county) will fall in tandem with California and the United States, although it’s anyone’s guess as to where it will land by mid-December 2020.

In San Luis Obispo County, the civilian labor market (total payroll, non-payroll, and farm jobs combined) is down by about 10,000 when comparing August 2019 to August 2020. While every job sector is down from their pre-COVID highs, the two sectors seeing growth are total farm (up 4 percent YOY) and transportation/warehousing/utilities (up nearly 3 percent YOY). However, the worst-hit sectors (percentage wise) are leisure/hospitality, nondurable goods manufacturing, “other” services, and construction/mining/logging (namely due to the hit in residential construction but not commercial construction). Local commercial construction (office and retail space) is doing much better than residential building right now.

Compared to California, the agricultural sector in San Luis Obispo County (farm and farm-related areas) is a bright spot right now. Total annual year-over-year employment growth in this area is above pre-pandemic levels with respect to greenhouse/nursery production (up 12 percent), fruit and nut tree farming (up 7 percent), and vegetable/melon farming (up 2 percent). The only sub-category that’s down is crop production support (down by 4.5 percent). In California, total annual employment growth in agriculture is significantly down (but on the flipside, leisure/hospitality, construction, and manufacturing have recovered much better so far in California relatively compared to San Luis Obispo County). Unemployment-wise, Santa Cruz and San Luis Obispo counties’ payroll job base has dropped the most year-over-year (down 15 and 14 percent respectively) compared to California as a whole — however, Santa Barbara and Ventura counties’ declines were much more tepid (only 9 percent drop for these counties).

Monthly business-formation applications in the Central Coast are rising in tandem with the entire state, although it’s hard to tell how many are hailing from the local region. Across California, a combination of monthly high-propensity business applications, corporation applications, and applications with planned wages (three separate categories) individually hit levels between 5,000 – 17,000 from 2006 to 2019, depending on the category. However, as of late August 2020 each category was spiking higher to levels unseen for several years, ranging between 7,000 – 22,000 (coming after a short-term decline from April to June) — approximately 35 percent above the previous long-term period. The economy and entrepreneurship are readjusting.

Central Coast: Demographics, Labor, Education & Economic Resources

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