Orange County:

Local Businesses Project Job Growth as Economy Works Through 2021

Although Orange County’s business activity is projecting modest-but-solid job growth over the next 6 – 12 months, local challenges in the labor market and household finances for many lower-income workers will reverberate into 2021 as the economy continues recovering from the COVID-19 recession.

That’s according to the most recent forecast and trends presented by experts from Cal State Fullerton. These experts’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

Cal State Fullerton’s ‘2021 Economic Forecast Conference’
Presented on Oct. 22 by the Woods Center for Economic Analysis and Forecasting at the College of Business and Economics (“The Great Disruption: Searching for Innovative Solutions and Infinite Possibilities in a Post-COVID World"):

With Orange County’s annualized total non-farm payroll employment growth most likely declining 7.5 percent in 2020, it’s expected to rebound to 3.7 percent positive growth in 2021 and 1.7 percent in 2022. Putting percentages aside, the current recovery won’t bring Orange County and other regions back to their pre-COVID employment levels until mid to late 2022 since the economy has to heal before it can play catch-up to what the job market would have looked like if the pandemic never happened. The economy’s next phase of recovery from late 2020 to early 2021 is expected move at a more gradual clip than what was experienced in the third quarter of 2020 (a huge rebound). What’s more: Orange County’s projected pace of recovery is wedged between two other areas — Los Angeles County and the Inland Empire (San Bernardino and Riverside counties), with the Inland Empire outpacing the entire four-county region and Los Angeles County experiencing the slowest growth.

Orange County’s unemployment rate (2.8 percent in late 2019, 14.7 percent by mid-2020, and recovering to 9 percent currently) will drop to 6.1 percent in 2021 and 4.6 percent in 2022. Unfortunately, employment data is “noisy” since the labor force — adults who are willing and able to work — changes dramatically during and after recessions. For instance, Orange County’s labor force hit 1.62 million individuals in 2019 before dropping to 1.57 million in mid-2020 due to worker displacement and life changes/choices from the COVID-19 pandemic on society and the labor market. It is expected to drop even further to 1.56 million in 2021 and stay there into 2022 as many workers are displaced for the long term and/or decide to retire. That means total non-farm payroll employment by companies in the county (after hitting 1.67 million in 2019) will drop to 1.55 million in 2020 and finally rise back to 1.63 million sometime in 2022 (with the amount of local unemployed individuals going from 45,000 in 2019 to 127,000 in 2020 and then recovering to 73,000 by 2022).

Orange County’s employment losses due to the COVID-19 pandemic and recession have been historic, like many other local regions. From January to August, total non-farm payroll employment in the county fell by 140,600 (on an annual basis) at a rate of -8.4 percent (and in Los Angeles by 322,500 or -7.1 percent and the Inland Empire by 101,500 or -6.6 percent). Orange County’s unemployment rate rose from an ultra-low 2.8 percent in late 2019 to 14.7 percent by mid-2020, though recovering to 9 percent in September 2020. Comparatively, Orange County’s worst unemployment-rate period during the Great Recession of 2007 – 2009 was 10.1 percent — higher than the current rate and future projected lower rate in the coming two to three months. Meanwhile, unemployment rates for the four-county region (Orange, Los Angeles, and the Inland Empire) ranged from approximately 13 – 16 percent in April 2020 before recovering to approximately 9 – 11 percent as of September 2020.

Putting Orange County’s total job losses aside over the past eight months, the recently announced layoffs stemming from Disneyland in Anaheim, CA are having a huge psychological and economic impact. It’s projected that between March 2020 to March 2021, the “indirect” negative impact on employment (non-Disneyland jobs that are economically connected) will be a loss of 46,100 positions across the entire Southern California region due to Disneyland’s recent layoff decision of 28,000 staff in late September. This regional “indirect” job loss amounts to a monetary loss of $5 billion in economic output for these 12 months in the multi-county area.

Personal income for individuals living and working in Orange County will take a hit in 2020 before recovering sometime in 2022. It will rise 7.3 percent in 2020 before registering -3.9 percent negative growth in 2021 and then coming back to 4.5 percent growth in 2022. On a per-capita county-level yearly dollar basis, it’s expected to be $77,400 in 2020 (up from $72,000 in 2019) before falling to $74,500 in 2021 as the economy works through recovery. It will probably reach $77,600 by 2022. In conjunction, taxable sales in the county will drop from $69 billion to $64 billion going from 2019 to 2020 (or -8 percent negative annualized growth) before recovering to $68 billion in 2021 (6.4 percent growth) and $70 billion in 2022 (3.6 percent growth).

Orange County households have reduced debt levels noticeably since the COVID-19 pandemic started impacting the economy. Average annualized growth in consumer debt in the county (excluding mortgages) fell nearly -2 percent in 2020 so far compared to the same period in 2019 (+0.3 percent), 2018 (+1.7 percent), 2017 (+0.8 percent), 2016 (+0.2 percent) and 2015 (+1.9 percent). Consequently, local consumer loan payments that are late were at a nearly all-time low by mid-2020, helping peg the average Vantage Score (credit score) of Orange County residents at a high of “796.” However, time will tell how high late payments will rise in conjunction with continued higher-than-usual unemployment for some local workers and residents — a key measurement to watch.

Orange County’s median single-family home price will increase an average 6 percent in 2020 and 3.2 percent in 2021. The local housing market has shrugged off the bloodbath elsewhere in the economy, setting record highs nationally and regionally due to a confluence of extremely low inventory and record low mortgage interest rates. That means local home prices have continued to increase during 2020 without missing a beat. Median home prices in Orange County and the rest of Southern California are rising at the fastest clip in 2020 in over three years (after seeing annual Orange County increases of 6.4 percent and 4.3 percent in 2017 and 2018). The county saw a rise of less than 1 percent in 2019 as this hot trend seemed to be plateauing even flatter, as well as a similar small month-to-month rise through early 2020. But during late summer of 2020, the median prices of local single-family homes have started rising at double-digit rates.

Given the above information, the September median home price in Orange County now stands at $880,000 — a historic high. These recent price hikes are partly due to pent up demand from the March to May period, when the COVID-19 pandemic led to a shutdown of most activities, as well as historically low mortgage interest rates. However, whether such increases are sustainable over the long term will depend on the future path of local jobs and income.

The latest Orange County Business Expectations Index (OCBX), a future economic indicator, is nearing its pre-COVID level and showing most local business leaders expect modest to moderate local economic growth over the next six months. The index's main measurement (which combines several sub-category surveys) hit 81 in late September, up from a low of 23 in April (compared to 93 in February). This is good news because there is a significant correlation between a rising OCBX and a future rise in local employment. Local owners, CEOs, and managers who said they expect overall business activity to improve or at least stay the same improved to 64 percent for the “future” fourth quarter of 2020 (up from 43 percent who said the same thing about the “future” third quarter of 2020).

About 62 percent of Orange County executives expect “significant” or “some” industrial growth within their own industry going forward, according to the OCBX. About 20 percent of local firms intend to increase their workforce, while 70 percent intend to make no changes in hiring or layoffs. About 46 percent of firms expect sales to increase this quarter, while 23 percent expect little change. Additionally, 44 percent of firms expect to have higher profits over the next three months, while 26 percent expect no change. And 20 percent of respondents expect to increase inventory, while 58 percent expect no change.

However, the OCBX also showed that 51 percent of respondents said concern over the state of the economy remained the most important “unknown” going forward. Government regulation was the next important factor at 15 percent. All other factors remained of much lesser concern, including the pandemic, elections, and job creation.

When do Orange County leaders expect to fully recover to levels of business, spending and commerce seen in early 2020 before COVID-19 hit the economy? According to the OCBX, about 45 percent expect to get there over the next six months; however, a cumulative 67 percent believe they will surely reach that level by the end of 2021 if not reached by early to mid-2021. However, 33 percent think it will be sometime in 2022. There is wide dispersion on how quickly local businesses expect to regain their original strength.

What do Orange County business leaders believe is the biggest threat to the economic recovery? According to the OCBX, an overwhelming majority (78 percent) think that the political and social conditions currently gripping the country pose a major threat to the local economy and businesses. Given the upcoming elections and deep political polarization, it is not surprising to have that listed as a major concern. Incidentally, there is less agreement on whether current fiscal (congressional/government) actions are sufficient or not to mitigate the economic impacts of the COVID-19 pandemic.

Don’t miss out on more local trends and analysis. You can click here for the complimentary local forecast report given to conference attendees, or click here for the latest OCBX monthly survey results. Additionally, you can watch the entire conference video archive by clicking here.

Orange County: Demographics, Labor, Education & Economic Resources

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