San Diego’s Data Bites: March 2021 Pt. 2

SAME INTEL, NEW GREAT ‘TASTE’

In case you missed it, EDC has launched a fresh take on our long-standing Economic Pulse. Welcome to the second edition of San Diego’s Data Bites!

Each month the California Employment Development Department (EDD) releases employment data for the prior month. This edition of San Diego’s Data Bites covers February 2021 and reflects the lingering effects of the coronavirus pandemic on the region’s labor market. Check out EDC’s Research Bureau for more data and stats about San Diego’s economy.

Key Takeaways

  1. San Diego employers added back 31,900 jobs in February, undoing the lion’s share of January’s loss of 37,900 payroll positions.
  1. The unemployment rate dropped to 7.2 percent from January’s 8.0 percent even as nearly 33,000 people joined or rejoined the labor force.
  1. February’s employment report is reason for cautious optimism that the economy has turned the corner, but there is still work to be done. Employment remains 8.7 percent below year-ago levels, the labor force is still 2.1 percent smaller than a year ago, and the outlook is wrought with uncertainty.

First glance

San Diego’s labor market bounced back in February, following two consecutive months of declines. San Diego employers added back 31,900 jobs, undoing the lion’s share of January’s loss of 37,900 payroll positions (revised from -38,600) and lowering the unemployment rate to 7.2 percent from January’s 8.0 percent (revised from 8.1 percent). Even better, the unemployment rate dropped as 32,900 people joined or rejoined the labor force—more on that below.

Industry view

Job gains were widespread across industries. Every sector except Wholesale Trade, Retail, and Healthcare and Social Assistance added jobs, and losses in those sectors were de minimis.

The volatile Leisure and Hospitality industry added 12,800 new jobs, following a loss of 11,500 in January. Business and Professional Services firms also added 6,800 jobs, while Construction and Other Services—which includes dry cleaners, laundromats, and other personal services—each gained 4,100 positions.

Gains in Business and Professional Services were led by Administrative and Support Services, which added 4,900 new positions. This subsegment also includes temporary staff, and growth in this field can sometimes be a positive bellwether for future gains as those temporary staff members are hired on permanently.

Nonetheless, it’s important to keep last month’s positive report in perspective. Employment in every industry, except Construction and Utilities, remains below year-ago levels. For example, despite last month’s push, Leisure and Hospitality employment still rests some 33.4 percent below its February 2020 level, and Other Services employment is still 22.9 percent lower than it was a year ago.

San Diego workers flock back to the workforce

Perhaps the most encouraging piece from February’s employment report is the surge in the labor force. Labor force participation among women and minorities has plummeted across the country since the pandemic ensued; and while EDD doesn’t report labor force statistics across demographic groups like the U.S. Bureau of Labor Statistics (BLS) does, it can be safely assumed that a similar dynamic has played out locally. As such, the return of these workers is a welcome sign, if sustained, because it will help to mitigate the cumulative effects of income losses among those most vulnerable groups.

Again, however, it is important to keep this all in perspective; San Diego’s labor force is still 2.1 percent smaller than it was in February 2020, and this has masked the true extent of the remaining weakness in the job market. This is because people who leave the labor force are no longer counted as unemployed by EDD and the BLS. If there were as many people in the labor force in February 2021 as there were a year earlier, the unemployment rate would still be perched at 9.4 percent, more than two percentage points higher than the officially reported 7.2 percent last month.

Wrapping it up

In sum, the February employment report suggests the regional economy may be turning the corner after a couple of disappointing employment reports in December and January. To be sure, COVID-19 cases have declined steadily in San Diego County in recent weeks, and the strong drive to get vaccine shots into people’s arms is most likely reassuring companies that the end of the pandemic is finally within striking distance. If so, then we can expect job gains to continue in coming months.

Nonetheless, the outlook is wrought with uncertainty. It remains unclear whether current vaccines will be effective in protecting against new variants of COVID-19. If not, then a future spike in coronavirus cases could force additional closures and restrictions, thereby hamstringing the recovery. In addition, the pandemic has led to wholesale shifts in how companies do business. Consequently, not every company will need to replace all of the workers that were let go, and thousands of the jobs lost over the past year may never return. Moreover, many businesses forced to shut down over the past year may not reopen, meaning that the weight of the jobs recovery will rest on fewer companies, which could push the timeline for a full recovery further into the future.

All of this is to say, we should be cautiously optimistic. On balance, the prognosis is good that San Diego will enjoy a relatively strong recovery this year and into 2022, but there is still much work to be done. Now, more than ever, it is necessary that we get this recovery right.

Training and upskilling will be vital for the thousands of workers whose jobs may never return. EDC’s Advancing San Diego program is working to do just that.

It will also be imperative that San Diego small businesses are connected to large buyers in order to keep remaining businesses in the region healthy and to help spur a new wave of entrepreneurship to meet the needs of San Diego’s largest institutions and employers. EDC’s Anchor Collaborative is working with large local businesses to help ensure big companies “shop local” for their procurement needs. Our research estimates that a one percent shift in procurement spending by large companies to local businesses could create thousands of new jobs in the region.

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San Diego’s Changing Business Landscape: The next normal is here

San Diego Regional EDC is excited to kick-off our Changing Business Landscape Series, which will be published bi-monthly in the San Diego Business Journal and on our blog.

Surveying the changing business landscape in San Diego

The COVID-19 pandemic has impacted every facet of life, including how businesses operate. The San Diego region began the year with near-record high unemployment and widespread small business closures. Meanwhile, large companies across the globe have extended remote work well into 2021 and are even abandoning their corporate campuses. Companies in every industry are rapidly re-evaluating how they do business and changing the way they interact with customers, manage supply chains, and where their employees are physically located. This has massive immediate and long-term implications for San Diego’s workforce and job composition, as well as regional land use decisions and infrastructure investment.

To identify evolving trends in local business needs and operations, ensuring their ability to grow and thrive in the region, EDC began surveying more than 200 employers in the region’s key industries in January. Given the uncertainty of this moment in history, EDC will continue to survey these companies on a rolling basis throughout 2021 to monitor and report out shifts in their priorities and strategies. These insights will help inform long-term economic development priorities around talent recruitment and retention, quality job creation, and infrastructure development. Businesses are surveyed on several topics, with varying emphases in each wave.

Here are three key findings:

  1. Everything is different, yet the future is bright. The pandemic has fundamentally altered how businesses operate across key industries. However, most companies are optimistic about their ability to pivot and emerge even stronger.
  1. Remote working is no longer a perk or competitive advantage—it’s the standard. Most companies view remote working as here to stay. This is viewed as both a benefit and as a threat to employee retention.
  1. Long commutes have been replaced by a blurring of work-life boundaries. Companies are struggling in maintaining employee morale and engagement. While many are seeing signs of employee burnout and isolation, few report significant concerns with retention.

San Diego’s innovation cluster rises to meet the challenge

One year into a global pandemic, San Diego’s most innovative companies and industries are well on their way to economic recovery. In fact, high-wage jobs—many of which are concentrated in aerospace, life science, and technology industries—have more than recovered from the pandemic-driven recession. This is welcome news as these are key drivers of economic growth in the region. In fact, every “innovation” job supports another two jobs elsewhere in the economy.

Even though growth has returned to the innovation cluster, the pandemic has disrupted the way these companies operate. The overwhelming majority (83 percent) of companies surveyed agree that the pandemic has fundamentally altered their industry. Yet, nearly as many (81 percent) feel that their industry has been able to adjust and remain healthy. Even more encouraging, 87 percent believe their industry will emerge even stronger once the pandemic has ended after adopting new ideas and implementing new strategies. However, those in the aerospace industry express somewhat lower levels of optimism, as the industry faces continued uncertainty around travel safety and demand.

Confidence is somewhat lower among smaller firms. Only 77 percent of those with fewer than 50 employees agree that their industry would emerge stronger and 10 percent strongly disagree. This likely reflects the disproportionate impact that the pandemic has had on small businesses, regardless of industry. While those in leisure and hospitality have certainly been the hardest hit, even small firms in professional and business services, including scientific and technical services, are currently experiencing lower revenues compared to before the pandemic.

Yet, the strongest signal for optimism comes from the direct response in combatting the novel coronavirus. San Diego companies have been among those leading the fight in everything from personal protective equipment and diagnostics to therapeutics and vaccine development. The life-changing and life-saving companies have pivoted and innovated yet again, drawing in record levels of venture capital investment. In the fourth quarter of 2020 alone, the region received nearly $2.7 billion in venture funding—with almost three-quarters going to life sciences and healthcare companies—which is more than three previous quarters combined, and $2 billion more than Q4 2019. The surge in investment and jobs recovery has the majority of innovation companies confident in the region’s ability to grow in prominence, or remain steadfast as a global leader in tech and life sciences.

The war for talent has no bounds

Talent has always been San Diego’s competitive advantage. People come from all over the world to get educated and build meaningful careers in everything from software engineering and autonomous vehicles to genomics sequencing and cybersecurity. San Diego’s innovation industries are among the highest-paying and fastest-growing in the region. Despite a global pandemic, many of these industries are accelerating hiring. The information sector, including telecommunications and information technology services, posted 20 percent more unique job ads in December 2020 than the year prior.

However, top talent remains hard to find. And while many of the jobs in these industries have shifted to either partially or fully remote, there are mixed feelings about whether it is a benefit or a detriment to talent recruitment and retention. Perceptions are tied to a company’s approach to attracting remote talent (see below). On one hand, a majority of respondents think that their ability to hire and retain skilled talent will not be impacted by the pandemic because of remote work capabilities. Many have expanded their recruitment beyond San Diego’s borders and are willing to accommodate working from outside the region to retain the very best talent. These San Diego-based companies that view the world as their pool for talent are embracing a global workforce that can get the job done from anywhere.

Yet, there is also a large minority of companies that view the pandemic as impacting the way they hire and retain talent. Again, the shift to remote work is cited as the top reason, with an even larger proportion (35 percent) identifying it as the cause for their pessimism. In fact, 45 percent of survey respondents rate hiring new employees during the pandemic as either “difficult” or “more difficult” than before, compared to 18 percent who view it as “easier” or “much easier.” Furthermore, nearly half of respondents cite talent recruitment as an area needing assistance and 20 percent identify it as an “urgent need.”

The pandemic has leveled the playing field for markets aiming to attract the best and brightest knowledge. San Diego’s competition with companies and regions across the country has increased. The region’s high cost of living is by far the biggest impediment to talent attraction, with 44 percent of respondents identifying high home prices as the most negative attribute of the San Diego market. This is due in large part to housing production not keeping pace with employment growth. As a result, San Diego has the second highest median home price among the 25 largest metros in the U.S., behind only San Francisco, and home prices jumped another 11 percent in 2020. Ensuring San Diego is an attractive and affordable place for talent and business is critical to maintaining its regional competitiveness.

Responding to workers’ needs is top of mind for companies

Transitioning to a remote work environment has been challenging. Business leaders are acutely aware of the need to balance conducting business as usual and responding to the changing needs of a newly remote workforce. Survey respondents report signs of ‘zoom fatigue,’ blurred work-life boundaries, and isolation among employees. While it has not yet significantly impacted retention, a full 60 percent of respondents rated “maintaining employee morale” as more challenging during the pandemic.

Furthermore, respondents expressed concerns about returning to an in-person work environment, recognizing that not all employees will want to return to the office immediately or full-time. This next phase of work will bring about a new set of challenges and a need for new policies, systems, and support for San Diego workers. Many questions remain around how much space will be needed and how it might need to be reconfigured to accommodate a flexible work environment that is also responsive to new health and safety requirements.

Survey respondents rated individualistic factors related to professional growth and work-life balance as the most important attributes to a competitive market for talent attraction and retention. This differs greatly from perceptions from just four years ago, when top universities and an entrepreneurial spirit were more top of mind. The desire to adapt and respond to the most pressing needs of its workforce, reinforces the notion that San Diego businesses value talent above all else.

Stay tuned for more on San Diego’s changing business landscape. EDC will be back every other month with more trends and insights. For more data and analysis visit: sandiegobusiness.org/research.

This research is made possible by:

San Diego’s Data Bites: March 2021

Same intel, new great ‘taste’

EDC is excited to unveil a fresh take on our long-standing Economic Pulse. Welcome to San Diego’s Data Bites!

Each month the California Employment Development Department (EDD) releases employment data for the prior month. This edition of San Diego’s Economic Pulse—now ‘Data Bites’—covers January 2021 and reflects the effects of the coronavirus pandemic on the labor market as well as benchmark revisions to 2020 employment data. Check out EDC’s Research Bureau for more data and stats about San Diego’s economy.

Key Takeaways

  1. San Diego employers eliminated 38,600 payroll jobs at the start of the year. Job losses in January are typical as temporary holiday staff is let go, but December’s report showed no surge in holiday hiring in 2020.
  1. Job losses nudged the unemployment rate higher to 8.1 percent from December’s 8.0 percent even as nearly 18,000 workers fled the labor force.
  1. Annual benchmark revisions to 2020 employment data revealed that the economy suffered steeper job losses last Spring and ended 2020 with roughly 30,000 fewer jobs than were initially reported.

San Diego’s labor market kicked off 2021 on a sour note. Local employers eliminated 38,600 payroll jobs in January, nudging the unemployment rate higher to 8.1 percent from 8.0 percent in December even as nearly 18,000 workers fled the labor force.

Job losses are typical in January as businesses roll off temporary holiday help. However, what makes this report unique is that January’s job losses followed a decline of 6,200 positions in December (revised from an initially reported -5,300 jobs), which is extremely atypical for the holiday season. In fact, December’s decline marks only the sixth time in 72 years where employers have let more workers go than they hired.

January’s dismal jobs report likely reflects the struggles of local businesses amid the ongoing COVID-19 pandemic rather than seasonal factors. Burning Glass estimates that San Diego consumer spending is still trending about 10 percent lower than it was before the pandemic, and data from Womply show that roughly 30 percent to 40 percent—or between 30,000 and 40,000—local businesses have been forced to close over the past year.

Industry view

Employment declines were widespread across industries. With the exception of Manufacturing and Utilities—which added a meager 100 jobs apiece—every industry either lost jobs or stayed flat. Hardest hit was Leisure and Hospitality, which gave up 12,200 positions and continues to be the most negatively impacted by the pandemic. Retail, which shed 6,300 jobs, was a distant second, erasing nearly all of the gains made since Spring 2020. The decline in Retail, although disheartening, was somewhat expected, however, since national retail sales and local consumer spending have both remained weak in recent months.

The nearly ubiquitous loss of employment across industries is another indication that labor market weakness in January stems from COVID-related measures rather than seasonality. In a typical year, January job losses would be focused around Leisure, Hospitality, and Retail as holiday staff is let go. However, in more normal times, most other industries have remained stable instead of laying off workers like they did this year.

2020 was even worse than we thought

Also included in January’s jobs report were benchmark revisions to the 2020 employment figures. Typically, in periods of contraction, employment revisions are negative, and that is exactly what EDD reported.

Benchmark revisions revealed that San Diego hemorrhaged 248,000 jobs between February and April 2020, which is 25,000 more job losses than initially reported. Leisure, Hospitality, and Retail accounted for around 16,000 of those additional losses. By the end of the year, revisions showed 30,100 fewer nonfarm payroll jobs in the region compared to the initial estimates.

The additional loss of jobs also meant that the unemployment rate was revised higher. Initial estimates showed the rate peaking at 15.2 percent in April 2020; revised data revealed that joblessness peaked at a significantly higher 15.9 percent, which is more in line with EDC’s estimates at the time.

You can use the below graphic to explore how revisions impacted total employment in the region, as well as each of the industries tracked by EDD on a monthly basis.

The road ahead

San Diego’s job market is entering 2021 on a weaker footing than initially thought. More jobs need to be recouped, and there are fewer businesses to help carry that weight. Together, this implies that the recovery will take longer than anticipated even after San Diegans have been vaccinated against the novel Coronavirus.

Still, there are actions we can take to help speed things along and emerge even stronger than before. Now, more than ever, it is necessary that we get this recovery right.

Training and upskilling will be vital for the thousands of workers whose jobs may never return. EDC’s Advancing San Diego program is working to do just that.

It will also be imperative that San Diego small businesses are connected to large buyers in order to keep remaining businesses in the region healthy and to help spur a new wave of entrepreneurship to meet the needs of San Diego’s largest institutions and employers. EDC’s Anchor Collaborative is working with large local businesses to help ensure big companies “shop local” for their procurement needs. Our research estimates that a one percent shift in procurement spending by large companies to local businesses could create thousands of new jobs in the region.

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Study release: North County’s manufacturing industry poised for recovery, growth

A marketing initiative of EDC and the five cities along the 78 Corridor, Innovate78 serves to spotlight the businesses and innovators that make our region competitive.

Today, Innovate78 released a new report, The Future of Manufacturing in North County, which finds the industry will continue to prove its resiliency and positive economic impact in the region—even amid trends in automation, globalization and COVID-19 ramifications. According to the study, manufacturing accounts for $18 billion annually (or seven percent) of the area’s economy, and while many of the 813 local manufacturing firms were impacted by coronavirus, 58 percent of survey respondents are looking to increase their space.  

The study analyzes trends in employment, which is concentrated in high-value goods like computer and electronic product manufacturing. This sub-industry specifically accounts for nearly one-third of all manufacturing jobs in North County, with 12,746 employees of the total 40,151 jobs reported in the study. This number is expected to grow nearly six percent in the next five years—continuing to position manufacturing as a key driver of North County’s economy.  

Flux Power, a company represented in the study that manufactures advanced lithium-ion battery for industrial and commercial equipment, increased both their staff and revenue in 2020 amid the pandemic. With more than 100 employees, the Vista-based company is now looking to increase both its production and nonproduction space within the region.  

“The need to be efficient, safe and environmentally-conscious is high, especially now, as businesses plan for post-COVID-19 recovery,” said Chuck Scheiwe, chief financial officer of Flux Power. “Manufacturing products that empower others to improve their day-to-day efficiencies will be critical in our industry and region’s future growth, and we’re proud to be part of it.”  

The study reports that during COVID-19, North County manufacturing companies were undoubtedly impacted by the pandemic, with 43 percent of respondents reporting a loss of revenue in 2020. Looking at net growth, however, there was a reported one percent increase in manufacturing jobs, with 186 manufacturing jobs lost and 956 gained as noted by respondents. Most job losses were in medical manufacturing, while most job gains were in machinery manufacturing.  

One company that reported job gains is Quik-Pak, an Escondido based computer and electronic manufacturing company. In addition to anticipating upscaling facilities in the future, during COVID-19 Quik-Pak hired staff and reported increased revenue.  

“The strength of the manufacturing industry in North County San Diego is one of the reasons we wanted to expand here,” said Rosie Medina, vice president sales and marketing of Quik-Pak. “The talent pool is rich, and there is space to grow. We appreciate that not every region has both of these critical components that are needed for our industry to thrive.”    

Automation, globalization and COVID-19 are obvious pressures affecting North County’s manufacturing industry. However, as Quik-Pak and Flux Power note, the need for innovation and talent remain strong. There are 9,804 manufacturing jobs with a higher-than-average risk of automation—that’s nearly 24 percent of all North County manufacturing jobs. Investment in upskilling and re-training will be needed to help move these workers into other quality jobs over time.  

From craft beer to surfboards, to life-changing medical devices and technology services, manufacturing has long been a pillar of the region’s economy, with impacts spanning beyond our community,” said Jordan Latchford, research manager of San Diego Regional EDC, the study author and managing entity of Innovate78. “This study confirms the manufacturing industry in North County is poised for a strong recovery, and will remain a significant economic driver for the San Diego region.”  

read the full report

LEARN MORE ABOUT SAN DIEGO’S MANUFACTURING INDUSTRY

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Study release: One percent shift in procurement could mean thousands of jobs for San Diegans

EDC study quantifies the impact of increased local procurement

Today, as part of a commitment to inclusive economic recovery, EDC released a study and set of recommendations for large employers to support small businesses by buying local. “Anchor Institutions: Leveraging Big Buyers for Small Business“ analyzes the spend of more than a dozen local anchors and demonstrates the impact of increased local procurement on quality job creation.

Anchor institutions are defined as universities, hospitals, local government agencies, the U.S. Navy and other large employers that are physically bound to the region.

In San Diego, anchors represent eight of the region’s 10 largest employers—providing more than 72,000 jobs. They purchase tens of billions of dollars in goods and services every year, and yet, local anchors send about one-quarter of all procurement spend outside the region.

The web-based study—procurelocal.inclusivesd.org—includes a summary of local spending, a cluster map of anchor institutions in the region, estimated economic impact from increased local spending, and a set of recommendations for growing quality jobs across San Diego through procurement.

The COVID-19 pandemic has disproportionately impacted people of color and spurred the closure of one-in-three small businesses across San Diego. Local small businesses employ nearly 60 percent of the total workforce, which is double the national average, and are responsible for nearly half of all job growth in the last five years. Despite their critical importance to the region’s economy, many small businesses report struggling to attract customers and generate new sales.

“Small business resiliency will be key in getting this recovery right. This report further demonstrates the importance of connecting our region’s small and diverse businesses to large, institutional buyers,” said Eduardo Velasquez, EDC Research Director. “This will mean more quality jobs for San Diegans, more thriving businesses and a stronger regional economy.”

KEY FINDINGS

  • Collectively, 14 anchors surveyed spend more than $9.9 billion each year on a range of goods and services, and only about $247 million of this reported spend can be traced back to San Diego businesses. Further, only a small proportion of this spend is reaching small (14 percent) and minority-owned or diverse businesses (11 percent).
  • Small shifts in procurement can mean big economic impact:
    • If the 14 anchors surveyed increased local construction spending by just one percent, it would put around $32 million into local construction businesses, adding $466 million to the local economy and helping create nearly 4,500 jobs in the region.
    • The same one percent increase in professional services (e.g. legal assistance) spending would pump nearly $12 million into local suppliers, resulting in an economic impact of nearly $56 million and support another 800 jobs.
    • The majority of these new jobs would be in industries with a higher-than-average concentration of quality jobs (those that pay middle-income wages).

“As a large employer that works with many diverse suppliers to meet our mission of delivering clean, safe and reliable energy, SDG&E understands the value small businesses bring to the regional economy,” said Christy Ihrig, vice president of operations support, SDG&E, anchor event and study sponsor. “When they thrive, our region thrives. To support economic recovery from the pandemic, we are more committed than ever to grow our supplier diversity program and encourage other local employers to do the same.”

Beyond impacts to suppliers and the regional economy at large, anchor institutions that buy from local, small, diverse businesses also stand to benefit. Specifically, several local anchors note that setting goals for greater procurement from these suppliers has resulted in greater customer service, supply chain diversity and resiliency, and stronger brand equity in the communities they serve.

“‘Shop local’ is about more than individuals; it means big business and organizations choosing to support their neighbors by buying in their communities. The City of San Diego takes pride in its efforts to work with local companies, is seeking increased opportunities to buy local and implores other local organizations to follow suit. Together, this is how we ensure a more equitable and inclusive San Diego,” said Mayor Todd Gloria, City of San Diego, study sponsor.

A CALL TO ACTION

To maintain our regional competitiveness, we need to create 50,000 quality jobs in small businesses by 2030, as outlined in EDC’s inclusive growth strategy. To do that, it’s imperative we help San Diego’s small and diverse businesses recover and thrive.

San Diego needs its largest employers (and our largest buyers) to commit to redirecting their procurement to local, small, and diverse businesses. To do this we must:

  1. understand individual institutions’ existing efforts;
  1. identify spend areas with high potential for inclusive, local sourcing; and
  1. define and track metrics that ultimately drive bidding processes.

We invite large firms to join San Diego Regional EDC’s Anchor Collaborative and help us shape and achieve this goal—join us here.

The report was unveiled today at the first in a series of Town Hall events. Watch a recording of the event here. Thank you to the study sponsors: SDG&E, City of San Diego, Civic Community Ventures, and the University of San Diego School of Business.

procurelocal.inclusivesd.org

Learn more about EDC’s inclusive growth goals

San Diego’s Economic Pulse: January 2021

Each month the California Employment Development Department (EDD) releases employment data for the prior month. This edition of San Diego’s Economic Pulse covers December 2020 and reflects some effects of the coronavirus pandemic on the labor market. Check out EDC’s Research Bureau for more data and stats about San Diego’s economy.

Key Takeaways

  1. San Diego lost 5,300 jobs, on net, in December, which is not typical during the holiday season.
  1. The unemployment rate jumped to 8.0 percent from 6.6 percent in November amid job losses and growth in the labor force.
  1. San Diego’s “K-shaped” recovery will exacerbate longstanding structural problems in the economy, making the case for an inclusive growth strategy even stronger.

Labor Market Overview

San Diego’s labor market suffered a setback in December after new business restrictions were put into place to combat a surge in COVID-19 infections and an alarming decline in ICU bed capacity. Local employers let go of 5,300 workers, on net, last month, lifting the unemployment rate to 8.0 percent from 6.6 percent in November. A drop in employment for the month of December is atypical, since holiday hiring is usually in full swing. Last month’s decline marks only the sixth time in 72 years where employers have let more workers go than they hired in December.

San Diego’s unemployment rate is lower than California’s 8.8 percent but significantly higher than the nation’s rate of 6.5 percent in December.

The causes for the rise in San Diego’s December unemployment rate are two-fold, and the news isn’t entirely bad: First, and most obviously, job losses drove the rate higher. However, this was compounded by an increase in the labor force of 12,200 people. The labor force vacillated for most of 2020 but ended the year close to its February, pre-pandemic level—good news for the labor market heading into 2021, if it is sustained.

Industry View

Leisure and Hospitality employers let go of 9,600 workers in December, which was more than enough to lower total employment. The lion’s share of hospitality job losses came from Accommodation and Food Services, which gave back 10,300 positions. Other Services, Government, Manufacturing, Educational Services (private, non-government), and Financial Activities each lost jobs. However, the losses for all of those industries totaled just 4,300, less than half of the layoffs experienced in Accommodation and Food Services alone.

The weakness in Leisure and Hospitality drove an even larger wedge between the jobs recovery for high-paying and low-paying positions, exacerbating a worrisome trend where the income and wealth gaps in San Diego will likely widen exponentially as a result of the pandemic-fueled recession.

Despite the decline in topline employment, job gains were apparent in a number of industries. Business and Professional Services added a healthy 2,500 workers in December, fueled by a gain of 2,700 in the crucial Professional, Scientific, and Technical segment, while retailers brought on 1,900 additional employees despite weak retail sales.

Behind the Numbers

All in all, December’s lackluster employment report is a downer, but not an unexpected one. With COVID-19 cases surging in the region and hospitals running out of valuable space for patients, business restrictions became necessary from a public health perspective.

As mentioned, the decline in employment last month is not typical for December, but it may bode well for January’s employment report. Under more normal circumstances, January typically reveals job losses as seasonal workers are let go. However, given that seasonal hiring was more tepid in 2020, layoffs in January may be less pronounced.

Labor force growth in December is also encouraging if it can be sustained. The extension of federal emergency unemployment benefits should help to keep a floor under the workforce, since only people in the labor force can claim them. Additionally, despite the sharp drop in Leisure and Hospitality employment last month, many firms in the region are still hiring. Therefore, we can expect people to remain in the labor force as long as job growth resumes as we enter 2021.

Unfortunately, these are about the only silver linings in December’s jobs report.

Annual revisions to the 2020 jobs numbers will be released by California EDD on Friday, March 12. Typically, revisions show greater job losses than were initially reported during recession periods. This is because the Labor Department estimates the pace of business formations in a given month, which usually assumes the addition of at least some new jobs as new firms come online. However, a Census-like count of business formation carried out after the initial estimates are released usually shows more business closures, on net, which thereby reduces the level of employment. So, in all likelihood, 2020 revisions could reveal deeper job losses last year than initially reported.

The shape and timbre of the jobs recovery means that even more work will be needed to shore up the local economy. The exponential widening in wealth and income gaps from the “K-shaped” recovery to-date will mean even more aggressive policies aimed at protecting and empowering our lowest-paid workers. Also, declines in the labor force earlier in 2020 were in large part the result of women leaving the workforce. If 2021 exhibits a repeat of that contraction, then it will almost certainly lead to greater disparities in gender pay. Finally, housing has continued to become even less affordable amid high unemployment and rising home values across the region.

It will take intentional and effective action to get this recovery right. It is now more important than ever to ensure greater access to higher education and worker training for our region’s lower-income households. Additionally, companies may also want to consider employee-ownership models, like the one Taylor Guitars recently announced, to give workers a larger stake in their economic fortunes. By offering a pathway to higher paying, more stable employment, we can ensure a more resilient and vibrant San Diego in the future, which will benefit all of us for decades to come.

Learn more about San Diego’s right recovery

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Economy in crisis: Structural challenges will persist after economy recovers

Key Takeaways

  1. San Diego’s jobs recovery has left the lowest-paid workers behind.
  1. Disproportionate job losses and the possibility that lower-paid residents will owe large sums in back-rent will exponentially exacerbate wealth inequality.
  1. Lower mortgage rates drove up house prices, making housing even less affordable despite record job losses and elevated unemployment.

Needless to say, 2020 was a rough year. But it was far worse for some than others.

San Diego employers added a better than expected 14,300 jobs in November, including a generous push by retailers who put 1,800 people back to work even as retail sales backtracked. Nonetheless, the “K-shaped” recovery has persisted, where middle- and upper-income workers either never lost or quickly recovered their jobs while lower-income jobholders were furloughed indefinitely or laid off.

As of November, San Diego nonfarm employment rested 6 percent below its February 2020 peak. However, jobs paying less than $41,000 per year—the threshold associated with quality jobs in the region—remained stuck 18 percent below their pre-COVID peak. Moreover, low-income employment cratered by some 43 percent from February to April last year, compared with 15 percent for all jobs.

Additionally, six industries, including Professional, Scientific, and Technical Services, have reclaimed all of the jobs lost to the COVID downturn, whereas wholesalers have recouped a meager 11 percent of the positions cut last year and information has only recovered one in eight positions.

This could have lasting impacts even after the jobs recovery is complete.

More than 60 percent of workers in the lowest-paid positions in San Diego are non-white versus 56.6 percent in all industries. So, to add “injury to insult,” minority workers that have suffered through months of intense social unrest this past year have simultaneously juggled disproportionate job losses.

Fortunately, eviction moratoriums were put into place last year that prevented many people from being evicted for nonpayment. But landlords can once again legally collect on back-rent or issue evictions if the statewide moratorium is lifted on January 31. People making less than $41,000 are far more likely to live paycheck-to-paycheck. In other words, a large swath of the population is entering 2021 with sizeable arrears to be paid off—something that’s tough enough for low-income workers even while employed, and even more difficult for the 18 percent of these folks who are still without jobs.

Worse, the wealth effects from this downturn have been particularly stark. Middle- and upper-income workers—most of whom already had some sort of savings and are much more likely to be homeowners—have been able to capitalize on lower interest rates and higher stock valuations all while holding onto their jobs. Meanwhile, most people making less than $41,000 a year were unable to amass significant savings, let alone any sort of real wealth, in the months and years leading up to 2020. The outright loss of income for so many of these workers most likely means an exponential widening in the wealth gap in San Diego.

HOMEOWNERSHIP EVEN LESS ATTAINABLE

Speaking of lower interest rates, San Diegans took full advantage of the 210-basis point drop in the 30-year fixed mortgage rate between November 2018 and November 2020.

San Diego’s housing market is significantly more sensitive to mortgage rates than many other parts of the state and country, in no small part because of the high cost of living in the region. In November 2018, when the average 30-year mortgage rate was 4.9 percent, the median home value was $659,500. A mortgage financed on that amount, minus a 20 percent down payment, would have totaled $1,008,118 over the life of the loan, or $2,800 per month. However, the cost of that same mortgage after the 30-year rate dropped to 2.8 percent would be $780,496, or $227,622 less than the 4.9 percent loan and $2,168 per month. Given all of this, rising home prices over the past two years or so make sense from a microeconomic point of view.

Even so, a 22 percent year-over-year increase in home prices as of December 2020 amid record job losses and elevated unemployment seems suspect. Indeed, calculating a housing affordability index that takes unemployment into account shows that housing has become increasingly unaffordable.

WE MUST TAKE ACTION

In sum, San Diego is likely to face myriad structural issues long after the economy has technically emerged from recession. Income and wealth gaps are likely to have been widened just like they have after each recession for the past 30 years. And jobless residents who were afforded a temporary reprieve from being evicted may find themselves in a situation where they owe large sums of money to their landlords.

A debt-ridden middle and upper-middle class has been tough enough on the economy as college graduates pay off their student loans. However, lower-income households tend to spend a much larger share of their paychecks than middle- and higher-income households, so having these funds siphoned off into repaying back-rent could disrupt consumer spending even more markedly for months, if not years, after the dust settles.

It will take more than just empathy to bridge these gaps and get this recovery right. It is now more important than ever to ensure greater access to higher education and worker training for our region’s lower-income households. Additionally, companies may also want to consider employee-ownership models, like Taylor Guitars, to give workers a larger stake in the economic fortunes of the businesses they work for. By offering a pathway to higher paying, more stable employment, we can ensure a more resilient and vibrant San Diego in the future, which will benefit all of us for decades to come.

Learn more about San Diego’s right recovery

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San Diego’s Economic Pulse: December 2020

Each month the California Employment Development Department (EDD) releases employment data for the prior month. This edition of San Diego’s Economic Pulse covers November 2020 and reflects some effects of the coronavirus pandemic on the labor market. Check out EDC’s research bureau for more data and stats about San Diego’s economy.

Key Takeaways

  1. Unemployment falls to 6.6 percent.
  1. San Diego retailers gear up for holiday season by hiring 1,800 employees, but sales continue to suffer.
  1. Shop local this holiday season and wear a mask.

Labor Market Overview

The region’s unemployment rate was 6.6 percent in November, down from a revised 7.5 percent in October 2020, and still more than twice the year-ago estimate of 2.9 percent. Unemployment continues to increase in San Diego’s unincorporated and poorer areas, while falling in wealthier areas. The highest unemployment area in the region was Bostonia at 12.4 percent followed by National City at 10.3 percent, and the lowest was Solana Beach at 3.6 percent.

The region’s unemployment rate remains lower than California’s unemployment rate of 7.9 percent, but slightly higher than the national rate of 6.4 percent. While unemployment continues to fall, much of the improvement can be attributed to government support. In fact, unemployment claims increased again this week showing as emergency aid has dried up—proof the local job market could once again backtrack in the coming months.

Total nonfarm employment increased by 14,300 in November. Trade, transportation, and utilities accounted for the largest monthly gains, adding 8,200 jobs last month, primarily concentrated in retail trade (up 1,800 jobs). Even so, compared to a year ago, retail trade is still down 6,200 jobs. Professional and business services followed with an increase of 2,800 jobs. Job gains were driven by administrative and support services, which added 1,800 jobs. Food services and drinking places continue to struggle, shedding 1,000 jobs last month, even before the mandatory closures that took place in December.

Compared to a year ago, San Diego nonfarm employment remains down 97,700 jobs, or 6.4 percent. Leisure and hospitality represent the largest share, down 35,300 jobs. Accommodation is down 12,900 jobs over the year, and food services and drinking places are down 22,400.

Retail Sales Decline

November marked the beginning of the holiday shopping season as shown by an increase in retail employment in San Diego. However, nationwide retail sales numbers were gloomy. Retail sales were down 1.1 percent from October (seasonally adjusted), which was much worse than expected and likely impacted by increased COVID-19 infections and decreasing household income as expanded unemployment benefits expired. Without a stimulus relief package from Congress, retail sales declines will likely continue and perhaps become severe as millions lose unemployment benefits the day after Christmas.

Department store sales in the U.S. declined by 19 percent since this time last year and 7.7 percent since last month. Clothing and clothing accessories stores declined by 16.1 percent since last year and 6.8 percent since last month. Food service and drinking place stores declined by nearly one percent since last year and 4 percent since last month due to mandatory stay at home closures.

November’s retail sales were the worst since April, adding to the already growing list of signs that a slowdown in the recovery could be imminent. As San Diego’s retailers hire more employees for the holiday season, the call to shop local and safely becomes more necessary, especially given what appears to be a slowdown in consumer spending. Small businesses drive San Diego’s economy and create thriving neighborhoods. Check out some local favorites around the County.

 

For more COVID-19 recovery resources and information, please visit this page.

EDC is here to help. You can use the button below to request our assistance with finding information, applying to relief programs, and more.

Request EDC assistance

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Economy in crisis: Job growth slows as we head into New Year

KEY TAKEAWAYS

  1. After an impressive October employment report, San Diego is set to end the year on a down note.
  1. Job growth in November is expected to slow, similar to the U.S., and fresh stay-at-home orders set the stage for a weak December and January.
  1. The string of weak employment expectations could delay a return to full employment from Spring 2021 to the Fall.

Given the way 2020 has unfolded to date, it’s only fitting that the year would end with a fizzle instead of a sizzle.

It looks like November’s jobs report for San Diego will serve up a slowdown similar to what was seen nationally. For the U.S., payroll job growth slowed substantially from 610,000 net jobs gained in October to a worse-than-expected 245,000 in November, on a seasonally adjusted basis. On a not-seasonally-adjusted basis, which is how the San Diego employment figures are delivered, U.S. job gains were cut by about two-thirds, from 1,587,000 in October to 517,000 in November. The fortunes of San Diego’s job market are tightly tethered to those of the nation’s, so we can expect a similar dynamic to play out here.

We won’t know for sure until the San Diego jobs numbers are officially released next Friday, December 18. But we can surmise some baseline conclusions based on the U.S. jobs numbers, California continuing claims for unemployment insurance, and recent stay-at-home orders issued by the state and county.

Based on the historical relationship between U.S. and local employment, it looks like San Diego gained anywhere between 7,500 and 8,000 jobs in November, down considerably from 21,500 the month prior. Moreover, some push and pull between industries will likely emerge.

The unemployment rate, which is calculated using a different survey than the one used to estimate nonfarm payrolls, appears poised to fall further despite the anticipated slowdown in payroll job growth. After falling 1.2 percentage points in October, from 8.9 percent to 7.7 percent, the rate could fall to around 7 percent in November. October’s employment report showed that a record 55,800 workers joined or rejoined the labor force, which has the effect of pushing the unemployment rate higher. So, if any of the mad rush back into the labor market was reversed last month, then the jobless rate could be shown to have fallen even as low as 6 to 6.5 percent.

SOFT END TO THE YEAR?

With the labor market slowing in November, it seems like a safe bet to assume a setback is in the cards for December, especially in light of the most recent COVID-19 shutdown orders. This certainly appeared to be the case in July when San Diego County reissued directives for non-essential businesses to halt or reduce operations as COVID infections surged and employment took a step back.

However, since San Diego’s job numbers are not adjusted for seasonality like the national figures, it’s important to realize that monthly employment patterns may reflect the seasonal ebb and flow of the job market. Looking back through history, San Diego has experienced July employment declines in 54 of the past 72 years that data are available, making it especially tough to tell if the dip this past summer was shutdown-related or simply a normal seasonal occurrence. In fact, the drop in July was just about average—slightly less so, actually—than those seen in most other years.

On the other side of the coin, employment has climbed in every December, except five, in the last 71 years as holiday hiring picked up. So, barring a double-dip recession in the region, the odds of any large-scale net job losses in December are slim. The more likely outcome is a slower-than-average job build if retailers and leisure businesses don’t bring on their usual volume of holiday staff—quite likely, given the fresh round of stay-at-home orders issued for the county.

MIXING THE INGREDIENTS TOGETHER

All in all, San Diego is looking at a string of underwhelming employment reports over the next several months. November will not repeat October’s healthy gains, and December could be flat to very modestly negative as holiday hiring is on pause amid COVID-induced shutdowns. January tends to show job losses as temporary holiday help is let go. However, if December holiday hiring is less robust than normal this year, then there will be fewer holiday workers exiting the payrolls in the beginning of next year. Nonetheless, most companies don’t tend to bring on many new hires in January, since interviewing and onboarding job candidates is usually interrupted by the holidays in November and December, setting the stage for a pretty weak month regardless.

It was recently mentioned that San Diego could return to full employment by April of next year if the average pace of hiring from April to October of this year was maintained. However, this is looking less and less likely, and a weak to flat November and December would put full employment closer to Fall 2021.

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Release: EDC study finds one in four local firms engaged in AI

EDC study quantifies impact of artificial intelligence, machine learning

San Diego industries that are embracing artificial intelligence (AI) support an estimated 175,680 jobs and $33.3 billion in annual gross regional product, according to a study released today by San Diego Regional EDC. Underwritten by Booz Allen Hamilton, “Measuring the Future: AI and San Diego’s Economy” is the first in a series of reports that will identify key industries and clusters where AI and machine learning (ML) have been implemented, and ultimately quantify the impacts of these technologies on San Diego’s regional economy.

The study—available at SanDiegoAI.org—includes a historic timeline, cluster map, and cross-references AI patent language with job postings to anticipate the future impacts of AI and ML on the job market.

AI and ML technologies have swiftly infiltrated most every facet of our lives as computing power and speed increase. Self-driving cars, algorithmic trading, customer experience bots and AI assistants like Siri and Alexa have become commonplace tools used by people at home and at work.

“The proliferation of AI and ML technologies promises to be a transformative force for businesses worldwide—and like in many innovative industries—San Diego is at the forefront. With this report, the EDC Research Bureau helps paint a picture of the impact of AI, proving its potential to grow jobs and even help narrow gender and racial wage gaps,” said Mark Cafferty, president and CEO, San Diego Regional EDC.

Contrary to popular belief and despite current economic conditions, three in five AI developers (62 percent) expect to see the number of employees specifically engaged in AI-related work grow over the next 12 months. This means locally based AI talent could help meet growing demand across the U.S. as employers try to hire workers in earnest that possess skills readily available from San Diego AI. Notably, job postings data in Sun Belt metros like San Antonio, Austin, Dallas, Tampa and Miami show that employers are struggling to fill positions requiring facial and speech recognition skills—key specializations of AI developers in San Diego. Meanwhile, predictive and forecasting AI could help alleviate hiring difficulties among firms in major economic and financial centers, including New York, Philadelphia, and Chicago. More than eight in 10 AI developers in San Diego specialize in machine or deep learning technologies, a fundamental building block for predictive AI.

Large local companies in San Diego like Booz Allen Hamilton, Northrop Grumman Corporation, ResMed and growing startups and small businesses like Lytx, Lockton, Traits AI and Semantic AI are helping to lead the charge in AI—enabling people and firms to operate more quickly and efficiently. Specifically, the use of AI or ML technologies largely supports four areas of firm activity: the development of new products and services, improved efficiency and productivity, reduced costs and an increase in business revenues.

“Booz Allen Hamilton is at the forefront of AI adoption, development and implementation, and we believe that San Diego’s companies can leverage this technology to meet their missions, attract talent and fuel economic activity,” said Joe Rohner, a Booz Allen director and leader in the firm’s analytics practice and AI services business. “We are energized that EDC’s report findings show local respondents see AI as truly helping the San Diego economy by creating more jobs—not eliminating them. People are essential to the ethical application of AI, and this technology will enable organizations and their workforce to increase productivity, quality and efficiency—in San Diego and globally.”

Despite AI’s productivity-boosting, job-creating power, a number of challenges remain. Top of mind for most local employers is the inability to source qualified talent. However, COVID-19 and the subsequent increase in remote work has expanded the talent pool for San Diego County’s AI and ML employers.

“Rapidly developing machine learning/artificial intelligence technology that enhances the work our men and women in uniform do every day is critical to the future of defense. Northrop Grumman is well positioned to continue to grow the local talent pipeline through our San Diego-based education programs so businesses in our community have the right skill sets available to support this important and rapidly evolving field,” said Alfredo Ramirez, Vice President of Northrop Grumman’s San Diego Autonomous Design Center of Excellence.

OTHER KEY FINDINGS

  • Average salary in AI/ML-concentrated industries is $127,960—3.9 percent above the national average for these industries and more than 70 percent above San Diego’s average worker salary.
  • For every 1,000 jobs gained in this cluster, another 1,400 jobs are created in other industries.
  • Survey proves AI adoption is creating job opportunities in the region:
    • 66 percent of firms agreed that the use of AI and ML has created new job opportunities
    • 54 percent of firms agree that AI and ML are increasing the need for more workers at their business
  • 31 percent of jobs in AI-concentrated fields require only a high school diploma and pay an average of $22.42 per hour
  • The boost to productivity and efficiency from AI and ML should lift wages in traditional or population-serving industries, which employ a larger share of women and non-white workers than other sectors, and could therefore potentially reduce gender and racial wage gaps as these technologies are adopted.

The report was produced by San Diego Regional EDC, underwritten by Booz Allen Hamilton, and sponsored by Northrop Grumman Corporation, ResMed, Lytx and Lockton.

Read the full study at SanDiegoAI.org

For more research from EDC, click here.