Orange County:

2021 Growth Will Lag Other Regions as Recovery Limps Along

Although Orange County’s economic growth will severely lag the state and nation in 2021, the coming year is destined to provide a positive foundation for local businesses, workers, and households as the recovery limps along after the COVID-19 recession in spring of 2020.

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

Chapman University
Presented on Dec. 17 by the A. Gary Anderson Center for Economic Research at Chapman University (“December 2020 Economic and Business Review”):

The 40,000 non-farm company payroll jobs that Orange County’s economy will add in 2021 is nothing compared to the 150,000 positions lost in 2020 — but it’s a start. By late 2020, the county’s economy was already adding thousands of new jobs as its recovery from the COVID-19 recession earlier in the year kept plodding along. However, the county’s autumn 2020 employer market will still go down in history as employing 1.52 million workers, a major decline (-9 percent) from the 1.67 million local individuals with jobs as of autumn 2019. Total non-farm county payroll employment will climb from 1.52 million workers in 2020 to 1.56 million workers by late 2021 — a 2.6 percent increase, yet still a far cry from 2019’s numbers. Orange County’s difficulty in climbing out of the COVID-19 recession from spring of 2020 is due to its heavy concentration of jobs in the leisure, hospitality, tourism, and entertainment industries.

Orange County industries that will recover the fastest in 2021 (annual growth rates) due to their significant downfall in 2020 are as follows: leisure/hospitality (9 percent), “other” services (8 percent), federal government (6 percent), and construction (6 percent). Industries recovering in the middle in 2021 (due to their relatively healthier foundation in 2020) are professional/business services (5 percent), information/technology (4 percent), retail trade (4 percent), transportation/warehousing (3 percent), and trade/transportation/utilities (3 percent). Industries barely growing in 2021 since they weren’t as negatively impacted in 2020 are utilities (0.9 percent), education/health services (0.6 percent), mining/natural resources (0.5 percent), manufacturing (0.5 percent), wholesale trade (0.4 percent), and financial activities (0.4 percent). Put into context, all industries lost jobs in 2020 to varying degrees with the exception of two sectors (utilities and federal government). Also, all local industries will gain jobs in 2021 with the exception of state/local government (-6.7 percent) and durable goods manufacturing (-0.1 percent).

Orange County's current and forecasted combined/total personal income seems like an anomaly compared to local workers' job losses and what transpired in the 2020 economy. After hitting $229 million in 2019, local personal income reached a record $242 million in 2020 and will arrive at nearly $257 million in 2021 (another new record high). The 2020 and 2021 increases are indicative of 6 percent annualized growth for both years — not seen in a long time. This most likely points to congressional/government transfers of money to individuals through regular unemployment insurance benefits, extended and extra relief benefits, additional COVID-19 pandemic financial emergency assistance, and even direct-payment "stimulus" to all individuals/households.

Total local taxable sales in Orange County will rebound by 12.5 percent in 2021 (reaching nearly $68 million) after falling -13.5 percent in 2020 (stooping to almost $60 million). For context, this total taxable sales number had hit almost $70 million in 2019. The specific areas under-pacing this recovery are food/drink taxable sales (-24 percent in 2020 versus a forecasted 13 percent in 2021) and general merchandise/clothing (-26 percent in 2020 versus a forecasted 18 percent in 2021). Other taxable sales categories are as follows: motor vehicles and parts (-8 percent in 2020 and 14 percent in 2021); service/fuel stations (-26 percent in 2020 and 30 percent in 2021); and “all other” (-7 percent in 2020 and 9 percent in 2021). For context, this compares to increases (or decreases) of -1.5 to 4.3 percent in 2019 for all categories (a much simpler range).

Existing sales of single-family and multi-family homes in Orange County will rebound by 12 percent in 2021 (more than 31,000 existing properties sold) after falling -9 percent in 2020 (about 27,600). For context, this figure ranged between 30,500 to 33,500 annually from 2016 to 2019. Additionally, the median price of a single-family home in the county rose 1 percent in 2019 (reaching $823,000), 8 percent in 2020 (reaching $887,000), and is projected to increase at least 4 percent in 2021 (due to low inventory of housing stock, record-low interest rates, and high buyer demand) and hit $926,000. The local affordability index for single-family homes (local median worker/household income compared to the local median home price) hit “78” in 2020, slowly rising from 64 in 2018 as low interest rates remain a positive foundation for first-time and reoccurring buyers (and took on local annual price growth head-to-head). In 2021, this affordability index will probably hit 79, meaning homes will be even that much more affordable due to lingering lower interest rates (not prices).

Total residential building permits in Orange County will rebound by 38 percent in 2021 to 8,650 homes completed after falling -39 percent in 2020 (or 6,300). For context, this figure, which includes both single-family and multi-family homes, ranged between 8,100 to 12,100 annually from 2016 to 2019. For several years now, multi-family builds have been heavily outpacing single-family construction. Additionally, total residential building permit value will hit $5.2 million in 2021 after stooping to $4.4 million in 2020 (and ranging between $5.3 million – $6.3 million annually from 2016 to 2019).

The COVID-19 recession from spring of 2020 hit Orange County harder than California as a whole. During the second-quarter trough (April to June 2020), non-farm company payroll employment dropped -14.1 percent on a year-to-year basis in the county versus -12.1 percent in California, and the uptick in the third quarter of 2020 continues to show the growth disparity between the county and state. In a comparison across counties, the greater dependence of Orange County on tourism, leisure, hospitality, and entertainment relative to other counties is heavily reflected.

Given the assumption that a COVID-19 vaccine will propel the economic recovery through 2021, Orange County’s job growth will finally start mirroring California’s — but not until the second quarter. This is not only especially true for the local leisure and hospitality industries (Disneyland, Knott’s Berry Farm, beach entertainment, sports games, concert venues, hotels, restaurants, etc.), but also very positive for other sectors of the economy.

What’s already helping fuel Orange County’s economy in late 2020 is a turnaround in residential construction activity. The widely watched national Housing Market Index (published routinely by the National Association of Home Builders) has recovered sharply and is now at an all-time high. However, in addition to historically low mortgage rates and the simultaneous beneficial impact these interest rates have had on housing affordability, the inventory of unsold homes in Orange County at today’s selling rate is only 41 days. That compares to a 71-day inventory of unsold homes in Orange County last year and 122 days of inventory two years ago. The environment is ripe for more residential construction over the next couple of years, so long as local governments approve.

The COVID-19 pandemic and ensuing recession in spring of 2020 revealed Orange County’s greater exposure to downdrafts in the tourism and leisure/hospitality jobs sectors. “But COVID-19 will eventually become a memory, a very bad one to be sure (but one that will eventually go away),” the forecast report states. “When that happens, tourism will come back. That, however, won’t cure slower relative growth in the county’s creation of higher value-added jobs that command higher salaries and incomes.” This is a completely separate issue. The gap between job growth in California versus Orange County widened to almost 1 percent during the 2020 Spring recession. In the month before COVID-19 hit (February 2020), Orange County’s job growth lagged other areas in California by only about 0.5 percent, displaying the pandemic’s disparate impact in the local employment market versus other areas. A long-term goal of local business, educational and civic leaders is to bring higher-paying jobs to the region.

The success of any area depends on its ability in creating great jobs, attracting people to live there, and giving people the chance to thrive — but this has been a challenge for Orange County over the past decade. While the county has been a leader in job creation over the past 10 years, most of these jobs have been low-paying service jobs. A great deal of wealth has been created, but most people are finding it hard to keep up with the cost of living. And while local and state taxes continue to increase, poverty levels and the homeless crisis grows. Some residents are voting with their feet as they eventually migrate out of Orange County seeking jobs in more affordable areas of the state or nation.

The “smart money” in Orange County knows that the county’s lower-paying job growth trajectory is not sustainable and has stepped up to the challenge of doing something to reverse this trend. A new strategy has been defined: Embrace the growth of innovation industries and position Orange County as an innovation hub — a compelling logic. Innovation industries have a history of creating higher-paying jobs. With higher-paying jobs, the county can attract people and create businesses that can grow in the future. This economic model has been thoroughly described by the Brookings Institution. Its research shows that innovation hubs are better able to attract capital, grow faster, and build wealth than places that do not focus on innovation. The Brookings Institution’s definition of “innovation jobs” spans various industries. More than simply information technologies, software, and semiconductors (which has fueled Silicon Valley’s growth in Northern California), it includes industries such as agricultural technology, chemical manufacturing, aerospace, and science and technology services. Since 2017, Orange County’s growth rate of innovation jobs has significantly lagged the United States (falling from a peak of 5.5 percent annualized growth in 2015 to -1.3 percent by 2017, only to climb back to a menial 1.8 percent by 2019).

The good news for Orange County is that it has many of the building blocks in place for creating an innovation economy. “Great universities in the county produce world-class research and highly trained graduates. Companies in the science and technology sectors have found Orange County to be a solid place to build their futures. And, for its size, Orange County has an entrepreneurship infrastructure to support innovative growth,” the forecast report states. “However, the county has not yet been fully able to strategically capitalize on its strengths. If Orange County is ultimately to become successful in innovation, its leaders need to recognize that the county is in a competitive battle with other innovation areas to attract human and investment capital. The county needs to look at this the way any successful business looks at competition in its own competitive arena. It must set quantifiable goals for innovation and regularly measure progress against those goals. But that kind of strategic roadmap requires a diagnostic tool to measure progress against goals.”

In partnership with the CEO Leadership Alliance of Orange County, the A. Gary Anderson Center for Economic Research at Chapman University has started this strategic journey (mentioned above). It has harnessed a team that includes scholars from both Chapman University and UC Irvine to create a regional innovation indicator. This indicator (the Chapman-UCI Innovation Indicator) is taking a quarterly snapshot of how Orange County is doing versus other technology hubs across the nation. It uses a blend of business growth, job growth, and wage growth to assess progress in Orange County versus that of 19 other innovation hubs around the United States. In addition to providing local leaders with a scorecard to measure our county’s progress in creating jobs in innovation industries, it will be used as a tool in determining the causal factors that explain how and why innovation jobs are created. As a bonus, the indicator will also provide a first-look at how the COVID-19 pandemic has affected innovation economies. Before the COVID-19 recession in spring of 2020, the indicator revealed 113 new innovation businesses/establishments created from early 2019 to early 2020 (while the average for 19 other tech hubs nationwide was much larger at 241). More data is forthcoming.

Caltrans’ County-Level Economic Forecast
Released in December 2020 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: Orange County. Or you can click here to view any county in California.

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

Small business activity across Orange County was down at varying amounts compared to pre-COVID levels as of late November of 2020. In the greater Los Angeles area (includes parts of Orange County), activity was down -31 to -38 percent depending on the measurement analyzed. The region was down between -59 to -73 percent in April 2020 before starting to recover. Measurements include the volume of hours 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.

Orange County: Demographics, Labor, Education & Economic Resources

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