Southern California:

Economic Recovery to Gain More Momentum in First-Half 2021

Southern California’s economy won’t take another meaningful step forward in its economic recovery coming out of the COVID-19 recession until sometime during the first-half of 2021. As it does so, different counties will recover quicker versus slower depending on employment demographics and other factors.

That’s according to the most recent forecast and trends presented by the Southern California Association of Governments, USC’s Lusk Center for Real Estate, and Economics and Politics Inc. These experts’ opinions spotlight intriguing viewpoints and projections so your credit union can plan appropriately.

‘Southern California Economic Summit’ (annual event)
Presented on Dec. 1 by the Southern California Association of Governments (SCAG) during its annual conference (“Charting an Inclusive Regional Recovery”):

As Southern California’s economy continues recovering, the region’s combined average unemployment rate across six counties is still expected to average 12 percent by the end of 2020 — revealing that certain localities are faring better than others. This is about 1 percentage point above the California rate and 3 percentage points above the U.S. rate. While the United States saw employment decline by 6.7 percent and the number of unemployed rise by 130 percent during March to May, the Southern California region experienced more dramatic impacts with employment dropping by 10.6 percent and unemployment rising by 185 percent (both local figures are also higher than California’s). In terms of job industries, the most significant year-over-year declines from December 2019 to December 2020 (due to the March-to-May 2020 window) are expected in leisure/hospitality (-24 percent), “other” services (-17 percent), and non-durable goods manufacturing (-11 percent). While there are no industries expected to see increases, the smallest employment impacts are expected in financial activities (-1 percent) and transportation/warehousing/utilities (-2 percent).

Southern California’s current economic environment is a sum of its parts: While the employment picture for each of the six counties has improved since April 2020, the region’s economy and labor market remains well below pre-pandemic highs. Industry, job, and economic trends and impacts remain a very fluid situation, just like COVID-19 infection rates. Lower-income segments of the population were likely already struggling before the pandemic hit the economy, especially in areas with a high cost of living. Increasing COVID-19 case counts and no sign of additional congressional/federal relief or stimulus — somewhat offset by news of vaccine effectiveness and a perceived end to political instability — create a vague picture going forward as business closures continue and small steps in job increases muddles along. Complicating the picture is rising home prices despite rising housing affordability concerns. While forecasting the economy remains a challenge, the Southern California region is likely to follow broader state and nationwide trends in its recovery, with some local variance at times.

Southern California saw employment drop by more than -1.78 million jobs (or -19.7 percent) between February 2020 and April 2020. The hardest-hit industries were leisure and hospitality (down 45 percent), other services (down 27 percent), information (down 23 percent), and nondurable goods (down 17 percent). The disproportionate loss of low-wage and entry-level jobs places additional pressure on affordability concerns, which were impacting the region long before the pandemic took hold.

Los Angeles County will see total non-farm payroll employment fall from 4.5 million in 2019 to 4.34 million in 2020 (a loss of -158,000 jobs), and then drop to 4.32 million in 2021 (loss of another -18,000 jobs). The county will finally recoup 70,000 jobs in 2022, bringing its total employment back up to 4.4 million jobs (but still 3.9 percent below its 2019 level). Much of Los Angeles County’s recovery is dependent on the region’s ability to shake off the impact of the pandemic. Its tourism sector will likely take several years before it reaches pre-pandemic highs as global travel recovers and people feel more comfortable. The majority of jobs lost in Los Angeles County over 2020 and 2021 will be low-wage, low-skill positions often held by the region’s most at-risk populations. However, industries in the county that were able to completely recover between April and September were finance/insurance, utilities, and mining and logging (while those experiencing the worst recovery include education, information, and government).

Los Angeles County’s healthcare, social assistance, public administration, and transportation/warehousing employment industries will lead its economic recovery from mid-2021 into 2022. However, the 2021 – 2022 prognosis for the county’s most negatively impacted industries remains grim, with accommodation/food services forecasted to shed over 124,000 jobs between 2019 and 2022 (or 27.7 percent of 2019 industry employment). By percentage, arts/entertainment and recreation exceeds this with a forecasted 35 percent reduction in industry employment over this period (about 37,800 jobs). By percentage and job count, real estate is estimated to have the least negative job outcome from 2019 – 2022, shedding only 0.3 percent (or 200 positions). Though the adverse impacts of the pandemic and associated economic crisis will be felt throughout the next several years, there are opportunities for local governments, government coalitions, planning authorities, and private and nonprofit partners to proactively address and redress much of the pain being felt by Los Angeles County households and businesses.

The Inland Empire (counties of San Bernardino and Riverside) will see total non-farm payroll employment fall from 1.56 million in 2019 to 1.45 million in 2020 (a loss of -102,000 jobs), but then recover to 1.52 million in 2021 (recouping 63,000 jobs). Local tourism-related sectors were the hardest hit and will likely lag pre-pandemic highs well after 2021. Additionally, an increase in high-growth sectors such as logistics, construction, and healthcare has been revised down due to complications imposed by U.S. tariff policies and uncertainty regarding U.S. Supreme Court rulings on the Affordable Care Act. While areas such as Riverside and San Bernardino counties have, and may, continue to benefit from in-migration due to families moving out of coastal counties for cheaper housing, the considerable job losses experienced in the region could work to slow its population growth and subsequent recovery.

By late 2021, the Inland Empire’s economy (counties of San Bernardino and Riverside) will fall short of its pre-COVID 2019 level of jobs by 39,300 — pushing a full jobs recovery into 2022. This assumes that some control over COVID-19 occurs as 2021 progresses and that Congress enacts another financial stimulus/relief package. Key local sectors to watch in the near-term start with the four that are most in trouble during 2020: eating and drinking establishments (a very susceptible sector); retail stores and shops (having somewhat transitioned to online e-commerce); travel and entertainment (a huge obstacle given public fear of close spaces during the pandemic); and consumer services (also susceptible due to continuing state restrictions). However, three other industrial sectors are very important to the two-county region’s continuing recovery in 2021: logistics, warehousing and transportation (driven by escalating e-commerce and imports from the ports of Los Angeles and Long Beach); construction (industrial warehouse buildings, infrastructure, and comparatively cheaper housing); and health care (already growing nicely pre-pandemic due to local population growth and demographics).

Despite heavy losses, Orange County’s diversified industry base has already made progress in rebuilding its labor market. Business and consumer sentiment in the region are already improving, even though the hardest-hit sector was leisure and hospitality, which saw considerable losses at restaurants, hotels, and Disneyland. Lower-wage and entry-level positions were disproportionally affected by the pandemic and are likely to see a much slower recovery than higher-skill, more technical positions. This also places additional pressure on home affordability concerns, which were already impacting the region long before the pandemic took hold. While apartment rents have registered some declines, home prices seem to continually rise, supported by a low-interest rate environment, low supply, and high demand. Orange County saw its unemployment rate rise from 2.8 percent in February 2020 to 14.7 percent in May, before dropping to 7.5 percent in October (losing 270,000 jobs between March and May but regaining a noticeable amount back).

What helps is that Orange County is a relatively diverse economy not heavily dependent on any one sector. The county’s diversity is a strength in softening the blows when particular sectors of the economy weakens. Orange County was the first Southern California county to fully recover from the Great Recession of 2007 – 2009. While economic hardship will likely continue to grow for most Orange County residents in the short term, the county has a history of successful economic recovery. The county will once again likely play a major role in the Southern California region’s overall recovery from COVID-19 as it is likely to rebound quicker than its regional neighbors thanks to a strong labor market, diversified industry base, and unique competitive advantages. However, the pandemic has disproportionately affected low-wage and entry-level jobs, which suggest that this group might see higher-than-average employment growth rates as they bounce back during the recovery (although current job postings show that occupations with higher educational requirements are in higher demand).

Based on the pre-pandemic environment, Ventura County is likely to see a slow and prolonged economic recovery, with growth likely to lag the state and several other counties over the next few years. By early 2023, after non-farm job growth of 2.1 percent in 2021 and 1.8 percent in 2022, the county will still be more than 9,000 jobs below its pre-pandemic peak. Prior to the pandemic, the region was already experiencing “economic softness” due to a shrinking labor force and economic growth slowing from 4.8 percent in 2013 to a paltry 1 percent in 2019. Employment reached 337,400 in February 2020 before it cratered by 41,800 jobs, a loss of 12 percent, while the labor force (pool of adults willing and able to work) also shrunk by 19,000. It means estimates of the county’s true unemployment-rate spike in May 2020 was probably 20 percent (well above the 13.5 percent “headline” figure).

Local gross domestic product (local GDP) in Ventura County will also lag behind California’s, and likely by an even larger margin than the county’s job growth. This is a continuation of a well-established pattern in the county where local jobs growth exceeds local GDP growth (meaning the majority of newly-created jobs continue to be lower-paying). This also implies declining productivity and stagnant wages. The only real upside is urban flight from more densely populated and strictly locked-down regions, where households seek the open space and environmental amenities for which Ventura County is known. The primary downside, however, is a second full-scale government-mandated shutdown. Jobs in retail, leisure and hospitality, and personal services (average annual salary of $30,600) are still down a combined 15 percent from their pre-pandemic level. However, higher-paying jobs (many are remote and with an average annual salary of $109,300), including information/technology, financial activities, and management services, are now only down a combined 3.8 percent below their pre-pandemic level. The COVID-19 economy is essentially accelerating the pre-pandemic compositional and demographic changes already happening in the county, as well as its prolonged period of economic weakness.

You can view the entire forecast report. Make sure to click here and see many more trends and analysis on the state of the Southern California economy and outlook; the modeling and economic impacts of COVID-19 through 2021; racial equity as a driver for recovery; insights at the county level; and next steps.

‘Casden Real Estate Economics Forecast’ (annual event)
Presented on Nov. 12 by USC’s Lusk Center for Real Estate during the annual conference (“State of the Multifamily Market”):

A recent comprehensive look Los Angeles County’s multi-family renter housing shows distress along multiple dimensions. Experts examined the condition of tenants across the county during the COVID-19 emergency, using data from the U.S. Census and an original survey of tenants in 1,000 renter households. The results reveal distress — almost all of it stemming from losses of work and income. These economic losses interact with many renters’ low household incomes and other pre-COVID vulnerabilities to create a host of difficulties, which could compound over time if left unaddressed. Click here to view the full report.

‘Inland Empire Quarterly Economic Report’
Released on Nov. 16 by Economic and Politics Inc. (“Inland Empire City Profile 2020”):

It is likely that 2020 will go down in history as the worst year economically in the lives of many Inland Empire residents. Even 2021 is unlikely to bring the two-county region back to the job levels seen in 2019. It will take 2023 to accomplish that. Click here for the latest trends in local population, taxable retail sales, assessed valuation of property, poverty rates, existing and new-home prices and sales, household income, job industry breakdown, the local employment forecast, and more.

Caltrans’ County-Level Economic Forecast
Released on Dec. 1 by Caltrans (the California Department of Transportation):

You can view Caltrans’ economic, demographic, housing, population, job, inflation, and industry breakdown forecasts for each county. Click on the following to view local trends and projections from 2021 – 2025: Los Angeles County; Orange County; San Bernardino County; Riverside County; and Ventura County. Or you can click here to view any county in California.

Southern California Small Business Activity
Updated routinely by Homebase, a provider of real-time digital tools for small businesses:

Small business activity across Southern California is down at varying amounts compared to pre-COVID levels. In the Riverside metropolitan area, it’s down -12 to -18 percent depending on the measurement analyzed; and in the Los Angeles metro region it’s down -24 to -27 percent. Both regions were down between 60 – 70 percent in April before starting to recover. Measurements include the volume of house worked by employees, the number of businesses open, and the number of employees actually working. You can click here to learn more and pick your region.

Southern California: Demographics, Labor, Education & Economic Resources

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