NEW: San Diego Business Hub takes small businesses online, boosts resilience

Public-private partnership offering subsidized digital tools for small, diverse businesses

Today, in partnership with local tech company GoSite, EDC launched the San Diego Business Hub, which in its first phase will offer up to 100 small, service-based businesses a full suite of digital tools at no cost. Made possible by grants from The San Diego Foundation and Union Bank, SDbizhub.com is accepting applications from businesses most impacted by the COVID-19 pandemic—women, minorities, veterans and other economically under-resourced groups.

The pandemic accelerated the digital transformation of companies of all sizes and industries by as much as five years in a 12-month period, with many struggling to keep up. Since the start of 2020, the region has seen nearly 40 percent of its small businesses close. Many of these closures can be attributed to businesses’ inability to quickly pivot online, depriving them of access to customers and key markets.

We also know those hardest hit by the pandemic have been communities of color who are being left further behind in San Diego’s economic recovery.

The proof is in the numbers:

  • Despite making up just 30 percent of the local population, Hispanic and Latinx communities accounted for well over half of all regional COVID-19 cases and two in five related deaths.
  • Additionally, people of color are overrepresented in local industries that were hardest hit during the pandemic (e.g. Hispanics make up 39.8 percent of Hospitality staff and 41.8 percent of Retail staff). As a result, unemployment and loss of income have been concentrated within Black and Brown communities.

The cohort of 100 service-based businesses (e.g. personal care services, transportation, food service, home repair, small contractors, etc.) will receive GoSite’s web-based tools—which payment and invoicing, bookings, review management, customer communications, template websites and more—free of charge for one year.

Thoughts from local leaders:

“Small businesses employ the majority of San Diegans, and it’s essential we invest in their growth, recovery and resiliency if we are going to get this recovery right. This partnership with GoSite allows us to do just that: Provide the digital tools small businesses need to weather future economic downturns,” said Nikia Clarke, Vice President of Economic Development, EDC.

“This partnership is a prime example of how San Diego public, private and civic sectors rally together to solve hard problems. Access to these digital tools will help our region achieve a more equitable recovery and help small businesses struggling today be more resilient as San Diego gets back on track and back to work,” said San Diego Mayor Todd Gloria.

“Small businesses face great challenges, made worse by the COVID-19 pandemic. GoSite’s mission is to help small businesses adapt and succeed, with technology in hand for them to easily communicate with customers, manage online bookings, accept online payments, generate invoices and drive reviews—all in one place,” said Alex Goode, CEO of GoSite. “GoSite is proud to partner with EDC to create the SD Biz Hub and deliver innovative technology resources to San Diego, the place we call headquarters and home.”

“To build long-term economic resilience, San Diego’s small businesses must have resources to sustain their connections to customers and markets,”  shared Mark Stuart, President & CEO of The San Diego Foundation. “This is an inspiring example of government, philanthropy and nonprofit sectors coming together to help the small businesses in our neighborhoods survive, recover and grow.”

FAQ and applications are now live, and will remain open until the cohort is full.

SDbizhub.com

San Diego’s Changing Business Landscape: Turning the pandemic corner

Welcome to the second edition in EDC’s Changing Business Landscape Series, which will be published bi-monthly in the San Diego Business Journal and here on our blog. If you missed the first edition, read it here.

Surveying the changing business landscape in San Diego

The COVID-19 pandemic has impacted every facet of life, including how businesses operate. Companies in every industry are rapidly re-evaluating how they do business, 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 is surveying more than 200 companies in the region’s key industries on a rolling basis throughout 2021 to monitor and report shifts in their priorities and strategies. In addition, EDC constructed the San Diego Business Recovery Index (BRI)—a sentiment index to measure companies’ perceptions of current conditions, as well as expectations for the future across several factors such as business development, employment and commercial real estate needs. Review the BRI concept and methodology here.

These insights will help inform long-term economic development priorities around talent recruitment and retention, quality job creation and infrastructure development. Companies are surveyed on several topics, with varying emphases in each wave.

Here are three key findings from the second wave of surveying conducted in April 2021:

  1. The worst of the pandemic is behind us. Companies are very bullish about the next six to 12 months and, as a result, plan to accelerate hiring.
  1. San Diego’s innovation cluster is (mostly) booming. Life Sciences companies lead the way while Cyber and Aerospace firms are still working through pandemic-related challenges.
  1. Companies are seriously reevaluating their space needs. Smaller firms are looking to expand their footprint, while traditional Tech companies may be scaling down.

The worst is behind us

San Diego companies indicated that they think the worst of the pandemic has passed. With a BRI of 58.9 in April, regional firms noted that they plan to hire or rehire workers at a slightly faster pace than they have up to this point, while also expanding remote work capabilities going forward.

Last month’s index reading reflects bullish assessments of, both, present conditions (the present conditions subindex registered a value of 56.1) and expectations for the future (subindex of 65.4). Companies noted some lingering effects from a full year in lockdown, including difficulties with business development and job losses, and neutral to slightly negative feelings on remote work over the past year. Nonetheless, firms reported bright views on the current state of the regional economy and noted that San Diego businesses and key industries have adapted to the pandemic better that those in peer regions.

Regional companies were even more upbeat when it came to expectations for the future. All of the index’s expectations subindex values were north of 50, and companies overwhelmingly believe that the regional economy will have improved significantly in the next six months (subindex of 72.7) and even more so within the next 12 months (subindex of 86.2). This is important because many companies make decisions today based on their assessments of business conditions in the near future.

Most companies shared in the optimism, but to varying degrees. Small companies with fewer than 50 employees that were hardest hit during the pandemic held slightly dimmer, though still generally positive, views than their larger counterparts. In particular, smaller firms cited ongoing difficulties accessing new customers, managing suppliers and vendors, and hiring and retaining workers. Even so, assessments of current earnings trends were only slightly negative, and small firms held a sunny disposition when it comes to the current state of the San Diego economy and business climate.

Interestingly, however, companies with fewer than 50 workers had the highest level of optimism for the future across business size cohorts, which could signal an inflection point for the pace of hiring in the coming months. This bodes especially well for the jobs recovery heading into the second half of 2021, as 96 percent of San Diego’s businesses have fewer than 50 employees and small businesses have historically accounted for roughly half of all job growth.

San Diego’s innovation cluster is (mostly) booming

San Diego’s innovation cluster overwhelming expressed optimism entering 2021, as companies shifted toward meeting the demand for life-saving technologies, treatments and personal protective equipment leading to record venture capital investment and renewed job growth. However, a closer look reveals mixed results within the cluster. Industries like Cleantech, Software and Biomedical Device producers all held especially confident views (BRIs in the mid-60s), while Telecommunications, Cybersecurity and Aerospace each signaled ongoing challenges from the pandemic (BRIs ranging from 43 to 50).

Biotech and Biomedical Device manufactures hold strong expectations for the regional economy, with plans to increase their headcount and real estate footprint during the next year. In addition, they expect to increase their use of remote work over the same time frame. While this may seem contradictory, it reflects the modifications and enhancements that many companies are making to protect workers on the production floor, as well as those necessary to attract workers back into the office. Workers want to feel safe once back on company property and they also want to maintain the flexibility that working remotely has provided. To accommodate these needs, employers are preparing for a flexible or hybrid workplace once reopen. In addition, many companies are reconfiguring and even seeking new space to keep workers spread out, adapting space to be more comfortable in a post-pandemic environment. This includes ‘hoteling’ and ‘neighborhooding’ models to help reduce the flow of people and simultaneously allow teams to collaborate in person. Companies are preparing for a gradual return to the office to give workers adequate time to warm up to pre-pandemic routines. More on that below.

While Telecommunications and Cybersecurity firms all share this optimistic regional economic outlook with their Life Sciences peers, these industries are much more subdued about their own expansion plans for the next year. On net, they see their needs for space as unchanged, with some modest reductions in hiring compared to typical years. This reflects the challenges these industries have faced during the pandemic, namely with respect to increased difficulty with sales, hiring and, somewhat surprisingly, inefficiencies from remote work. Aerospace has not yet recovered from the initial impacts of the pandemic, still reeling from significant hits to both sales and employment, as well as disruptions in their supply chains from lockdowns and restricted international travel and transportation.

Smaller firms are looking to add space

After more than a year of implementing remote work and reduced onsite staffing, companies are beginning to plan for a return to the office. However, how much space awaits those returning to the office will vary by industry as well as firm size.

It is small- and medium-sized firms that are looking to expand their commercial real estate footprint over the next year rather than larger firms. In fact, the proportion of firms surveyed that expect to increase space by 10 percent or more of their current square footage is nearly double that of those planning to reduce their current space by 10 percent or more (16 percent to 8.4 percent, respectively). However, when you factor in the size of each company, those planning significant real estate growth represent only three percent of the jobs compared to 13 percent of jobs for those looking to reduce space significantly (companies surveyed collectively employ nearly 200,000 workers).

When we look at the innovation companies, we see some stark differences between traditional Technology and Biotechnology industries. Eight percent of respondents representing 22 percent of jobs plan to reduce their space by more than 10 percent—mostly in the Telecommunications industry. However, nearly 26 percent of respondents representing 41 percent jobs expect to add modest amounts of space less than 10 percent of their current footprint. Here many respondents are in the Biomedical Device and Biotech industries and likely in need of additional production or lab space.

Understanding these evolving and distinct trends is important because San Diego’s innovation cluster is leading the region out of this pandemic-driven economic downturn, just as it has in each past downturn. Each job added in the innovation cluster supports another two jobs elsewhere in the economy. Yet, these innovation companies do not necessarily need to be physically located in San Diego in order to operate. Making sure these companies have the infrastructure and access to talent that they need to flourish is critical to our region’s prosperity.

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.

Take the next survey here

This research is made possible by:

San Diego’s Data Bites: April 2021

Each month the California Employment Development Department (EDD) releases employment data for the prior month. This edition of San Diego’s Data Bites (formerly the Economic Pulse) covers March 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 establishments added 9,900 new payroll positions in March, but gains were uneven across industries.
  1. The unemployment rate edged lower to 6.9 percent from February’s 7.2 percent. However, this was due primarily to the loss of 10,300 workers from the labor force.
  1. Consumer spending has improved significantly as households spend stimulus checks and unwind the savings accrued over the past year or so; this could mean tens of thousands of jobs in Leisure and Hospitality and Retail in the coming two to three months.

First glance

The March jobs report for San Diego was a mixed bag. Employers added 9,900 new payroll positions, and the unemployment rate edged lower to 6.9 percent from 7.2 percent in February. However, job growth was uneven across industries, with gains in Leisure and Hospitality, Professional and Business Services, and Government partially offset by declines in Construction, Manufacturing, and Retail. Moreover, 10,300 workers left the job market in March—or roughly a third of the 29,800 people who either joined or rejoined the labor force in February. In fact, it was the loss of these workers that pushed the unemployment rate lower more than employment gains.

Industry view

Job gains were apparent in just nine of the 16 supersectors tracked by the EDD. This is somewhat surprising, given March’s blowout employment report for the U.S., which showed nearly a million new jobs were created.

Leisure and Hospitality establishments added 5,000 jobs in March, building on the 13,200 positions recovered in February. Also encouraging, more than half of these jobs came from restaurants. Meanwhile, Professional and Business Services logged an additional 3,300 positions thanks to a big push from the crucial Professional, Scientific, and Technical Services segment, which notched 2,900 more jobs in March than the month prior.

Builders let go of 1,500 workers in March, reversing most of the 2,100-worker gain from February. And, while losses in Construction aren’t completely unheard of in March, they’re certainly the exception rather than the rule. Builders have let go of workers in March in only seven of the past 31 years.

Manufacturing, Retail, Finance, and Real Estate companies let go of a combined 1,100 workers in March. These figures may reflect some statistical noise and potentially even some buyback after February’s strong report. Nonetheless, the loss of 400 Retail positions is a surprise, especially following the March U.S. retail sales report, which showed a huge rebound in consumer spending last month.

Relief for Hospitality and Retail is (finally) on the way

U.S. retail sales, which include sales at restaurants and bars, jumped by 9.8 percent in March, blowing past analysts’ expectations. The meteoric rise was in large part the result of stimulus payments that were distributed to millions of households last month as part of the Biden administration’s $1.9 trillion COVID-19 rescue package.

In addition to stimulus-related spending, consumers may have also begun unwinding some of their savings now that a sustained recovery appears to be in the offing. To be sure, households began hoarding cash at the onset of the downturn last year. The U.S. personal saving rate peaked at 33.7 percent last April, decimating the previous record of 17.3 percent that was set in May 1975, and remained perched at an elevated 13.6 percent in February 2021, which is nearly double the pre-pandemic average of 7.3 percent observed between 2010 and the end of 2019.

As long as the news around COVID cases continues to be positive and residents continue to be vaccinated at current rates, it’s not unreasonable to suspect that consumers will continue to spend freely into the summer and fall months.

This is particularly good news for San Diego’s restaurant and bar scene. Given the region’s status as a premier tourist destination, changes in national spending at eating and drinking establishments correlate strongly with job growth here at home. If sustained, March’s leap in U.S. retail sales could mean as many as 50,000 to 60,000 payroll positions at San Diego’s bars and restaurants, in addition to March’s jobs build as employers continue to meet rising demand.

Retailers can also expect a big boost. If historical relationships hold, 15,000 to 20,000 positions could appear in April and May if consumers continue to loosen their purse strings. The correlation between local Retail employment and national consumer spending is quite a bit looser than the relationship for eating and drinking places. However, as a point of comparison, local consumer spending data from Affinity also reveal a rebound, which reinforces the notion that job gains will continue for at least the next several months barring any unexpected hiccups.

Bottom line

Even though it wasn’t quite as strong as expected, March’s employment report is further evidence that the job market has finally turned the corner after a temporary slump in December and January. Nonetheless, it will still take some time before the damage wrought by the COVID downturn is undone. Payroll employment is still 7.2 percent below year-ago levels and 8.1 percent lower than the pre-pandemic level reached in February 2020. Moreover, the unemployment rate remains elevated, and 57,140 workers are still missing from the labor force.

All of this is to say, we should be cautiously optimistic. On balance, odds favor a strong rebound this year and into 2022, but there is still a lot of 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 facilitating this by connecting employers, educators, and students to the training and education they will need to thrive in the coming expansion. Just this week, Advancing San Diego announced its Preferred Providers of Manufacturing talent, and opened applications for small businesses seeking interns.

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 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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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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Economy in crisis: SD housing market advances, but geographic differences remain

KEY TAKEAWAYS

  1. Despite ongoing economic pressure, San Diego home values and rents reached new peaks in October.
  1. Home prices and rents are highest along the coast, but price increases have been most pronounced in more rural, inland areas of the county.
  1. Areas in the county with the highest unemployment rate tend to have the lowest cost of living, however prices are increasing quickest in those areas.

San Diego home prices and rents continued to rise in October, despite the ongoing economic pressures presented by Covid-19 and efforts to contain the virus. According to Zillow, the median value of a middle-tier home advanced 1.6 percent from September to reach a new peak of $649,474*, up 7.3 percent from February and up 9.5 percent from a year ago. Meanwhile, average rents reached $2,363, also a fresh high, up 1.4 percent from February and 2.1 percent from a year earlier.

San Diego home prices and rents are both growing faster than other large California metro areas like San Francisco, Los Angeles, and Santa Barbara, as well as the U.S. average. Even so, San Diego’s record-breaking house prices and rents are not unique. Of the 914 metropolitan and micropolitan regions covered, Zillow reported new home price peaks in 645 (71 percent) of them, and rents are topping out in 88 percent of 107 regions tracked by the real estate company.

San Diego home values are high, and they’re rising at an accelerated pace.

 

Rent increases have slowed but continue to climb faster than the U.S. and other California metros.

Sub-regional look presents an interesting picture

Housing price appreciation has been most pronounced in largely rural areas. Jacumba home values have surged by more than 23 percent over the past year, while prices in Ranchita, Tecate, and Warner Springs are all up between 18 and 19 percent. Yet, the median price for a home in Downtown has inched higher by a much less impressive 2.7 percent year-over-year.

A similar trend plays out when looking at rental values within the county. Rents in Ramona have jetted 15.8 percent higher over the past year, while Escondido rents are up some 6.5 percent. Coincidentally, rents have fallen in more central locations like University City, Carmel Valley, and Downtown.

Generally speaking, housing price appreciation and rental increases are most pronounced in areas where prices and rents are relatively low. This could reflect a natural migration out and away from the City of San Diego as buyers are seeking out price deals in more affordable, inland areas. This is especially true as those who are able to work from home no longer have to weigh as heavily the idea of a longer commute when deciding where to buy.

Also worth noting, is that home values and rental prices coincide with economic outcomes in these areas. For example, in Solana Beach, the median home price is more than $1.5 million, and the unemployment rate is just 4.2 percent—well below the county rate of 7.7 percent. By contrast, the median home price is $480,349 in National City, where unemployment is stuck at 11.5 percent. Similarly, rents are topping out at nearly $3,300 per month in low-unemployment Solana Beach, while renters are paying just over $1,800 per month in El Cajon where the jobless rate hovers at 11.4 percent.

The map below clearly shows how home prices and rents are growing in areas where properties are cheaper. Those regions are also the pockets of the county where joblessness is rampant.

Select between home prices, rents, and unemployment below using the ‘Metric’ dropdown, and choose between Level and YoY % change in the ‘Transformation’ dropdown to explore more.

ARE POORER SAN DIEGANS BEING PRICED OUT?

The relationship between home values (an indicator of how much workers in an area can afford) and labor market outcomes during the Covid-19 downturn shines a harsh light on the economic disparities affecting San Diegans with different socioeconomic backgrounds. Workers in areas where home values and rents are lower are far and away more likely to be without a job as Covid-related restrictions force business closures throughout the county.

This relationship statistically significant, offering up yet another piece of hard evidence that the most recent recession has disproportionately hurt poorer people.

What’s worse is that the torrid pace of price growth for homes and rental properties in higher-unemployment regions may force the most vulnerable San Diegans out of those areas as prices become unaffordable. This would exacerbate an already-troubling trend that has pushed more people out of the region than into it over the past decade.

Now, more than ever, we need to analyze our options and develop policies that help to prevent San Diegans from being priced out of the region. Cultivating and retaining a strong local workforce isn’t just about maintaining San Diego’s identity, it’s also about creating a stronger, more resilient region in coming years that will be better able to withstand the inevitable next downturn. Go here to learn more about how EDC is working to ensure San Diego gets this recovery right.

*Due to availability of data and varying sources, these numbers differ slightly from others we’ve recently posted.

Nate Kelley
Nate Kelley

Sr. Manager, Research

Economy in crisis: Closer look at August employment report reveals troubling trend

KEY TAKEAWAYS

  • A deep dive into San Diego’s employment report for August reveals a troubling trend.
  • Thousands of workers have fled the labor force since February, which has artificially lowered the unemployment rate and puts San Diego’s economy at risk.

THE SNAG

We’re taking a deeper dive into San Diego’s employment report for August. The region added 20,500 payroll jobs last month as businesses forced to close again in July were allowed to reopen with restrictions in August. Additionally, the unemployment rate fell 2.5 percentage points from 12.4 percent in July to 9.9 percent, which is more than three times the largest downward move in the rate observed before the pandemic. However, a closer look at the record drop in unemployment last month reveals a troubling trend.

In order to be counted as unemployed in the Labor Department’s employment report, workers must still be in the labor force, which is defined as actively seeking employment over the four weeks prior to the survey. This means that the unemployment rate can theoretically drop in a given survey month, even if there were no job gains, if enough workers leave the job market.

Some 16,400 workers exited the labor force in August, the largest single-month exodus in more than six years. Without last month’s contraction in the labor force, the unemployment rate would have stood at 10.8 percent. Widening the temporal aperture a bit, San Diego’s labor force has withered by 36,200 workers since February before the COVID downturn took hold. If those workers had not fled the workforce, August’s unemployment rate would have stood at an even more elevated 11.9 percent in August, two full percentage points above the officially reported 9.9 percent, and would have peaked at 17.6 percent in May, 2.4 percentage points higher than the officially reported rate of 15.2 percent that month.

WHY IT MATTERS

The above creates at least two issues that can have tangible effects on the real economy that span well beyond any technical foibles underpinning the calculation of the unemployment rate:

  1. Workers who drop out of the labor force cannot receive unemployment insurance (UI) benefits. The average weekly UI payout in California is $305.82. Using that figure as a guidepost (UI payout data aren’t readily available at the metro or county levels), the loss in household income conservatively amounts to roughly $20 million dollars each month—or almost a quarter billion dollars per year. And that’s just accounting for the 16,000 or so workers who left in August. Including the roughly 20,000 other discouraged workers who have left since February, that $240 million balloons to nearly $600 million that is no longer reaching households’ wallets—and, therefore, local businesses—in a given year.
  1. Marginally attached workers are significantly less likely to rejoin the labor force as time wears on. The longer that workers remain on the sidelines, the more effectively they can adjust household spending habits and re-examine the trade-offs between working and being home with family. On average, it takes higher pay to entice workers to rejoin the labor force than to keep them in the labor force to begin with.

A significant rise in worker pay sufficient to draw re-entrants back to the job market will hinge on a dramatically lower unemployment rate, which is well off in the future, perhaps as late as 2022. Given that, there’s a good chance that many of those who’ve already left the job force will not return. It will also give many more the opportunity to exit if they are not rehired soon.

Ultimately, this translates to San Diego’s economy relying on fewer workers to drive growth and maintain economic stability. The economic literature on this topic suggests that future economic downturns could become more frequent and deeper if growth and stability rest on a smaller number of employees. That’s why we need to get this recovery right – learn more here.

That’s why a path forward for discouraged workers that includes upskilling and reskilling is so necessary. The prospect of a more stable and lucrative career would likely draw many people who have left over the past six months back to the labor force. This could put money back into people’s pockets well ahead of late next year or early 2022 and could help to mitigate the possibility of any longer term damage to San Diego’s economy.

EDC’s Advancing San Diego initiative is exploring a viable path forward. With better connectivity to academia, business leaders can begin to communicate the specific skills required to successfully perform jobs in any number of high-demand positions, providing the roadmap for colleges and universities to enhance their curricula perhaps by building out “micro-credential” certificates or academic programs designed to prepare workers in a matter of weeks—rather than years—to take on those jobs.

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

Regardless of how this all plays out, 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: Local housing market stays hot, unaffordable despite COVID

THE TAKEAWAYS…

  • House prices continued to climb locally, despite record job losses from COVID
  • Lower mortgage rates, strong population growth, the addition of high-earning newcomers to the region, and a razor-thin inventory of available houses have fueled house price growth
  • The evidence suggests that thousands of people are being priced out of San Diego each year, which could cause talent bottlenecks for local employers and drive labor costs higher
  • Building new housing will be crucial to making San Diego a more affordable place for people to live in the future

HOUSING STILL ON A TEAR

COVID-19 has done little, if anything, to cool down San Diego’s hot housing market. Depending on the source, the median home price in the region was up in July of this year anywhere from roughly 5% to more than 10% from a year prior. Meanwhile, rents are essentially flat to just slightly down over the past year even as personal income cratered an estimated 10.5% from February to April. Earnings have crawled back as job gains resumed in the summer months but still remain well below pre-COVID levels.

WHY HOUSING HASN’T FALTERED

So, how can the local housing market possibly support climbing prices and some of the highest rents in the country amid record unemployment? A combination of factors are at play, many of which are specific to San Diego.

First, falling mortgage rates lured more homebuyers into the market in the summer following an initial decline in April and May as the COVID outbreak worsened. Existing-home sales rebounded sharply in June and were up more than 10% from a year prior by July. Additional buyer interest drove prices higher.

Second, the pandemic disproportionately hurt workers in lower-paying fields while many workers in higher-paying industries shifted to remote work, allowing landlords and home sellers to charge prices at or near (or higher) than before the outbreak, especially for upper-tier properties.

Finally, San Diego boasts a national and international allure for high earners for its climate, lifestyle, and concentration of tech-related innovation jobs. More people have moved out of San Diego than moved here in recent years, but those moving in to the region tend to make about four times as much than those moving out, allowing home sellers and renters to keep prices elevated.

Therein lies the problem. Reframing the point above, it appears that residents are being forced out because they simply can’t afford to live here anymore, while the people moving in have secured employment in high-paying fields.

It’s important to note that net migration only measures people moving across county lines and doesn’t include organic population growth as people start families, people live to be older, etc. Overall, San Diego’s total population grew by more than 235,000 residents, or 7.6%, between 2010 and 2019—well above the 6.1% growth experienced nationwide. Housing supply has failed to keep up, and the result has been a steady climb in already-high housing prices locally.

THE REPERCUSSIONS

Housing affordability—measured as the ratio between earnings and median house prices—fell for all workers between February and July. This is in spite of the fact that higher-paid workers were, in most cases, able to continue working through the pandemic. However, housing affordability in San Diego is still farther from reach for lower-paid workers, underscoring the affordability issue faced for employees in fields outside of San Diego’s innovation economy, which includes tech and life sciences. Earnings for workers making less than the median salary of $73,596 per year dropped an estimated 19.5%, compared with a relatively less severe 7.3% decline for workers making above the median.

This creates an issue, since it limits the number of workers available in the region for fields outside of white-collar professions and may potentially create a talent bottleneck that could ultimately force labor costs higher. This is especially important for businesses operating within the tourism sector, including restaurants, bars, hotels, casinos, and retail shops already operating on tight margins that could have more difficulty absorbing rising labor costs than firms in other industries with greater pricing power.

Above-average population growth, above-average earnings for many employees, and a constricted housing inventory have created a perfect storm of unaffordable housing in San Diego. Expanding the supply of housing, as well as cultivating additional mass transit options—another topic in and of itself—will therefore be crucial to helping balance the market and ensuring San Diego retains its diverse talent pool.

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

Regardless of how this all plays out, EDC is here to help. You can use the button below to request our assistance with finding information, applying to relief programs, and more.

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Economy in crisis: SD tourism holds up, but the recovery remains uneven

THE KEY TAKEAWAYS…

  • San Diego’s accommodation sector is performing well as summer draws to a close.
  • Hotels have been slow to rehire workers, but recent metrics suggest that a strong spate of hiring is in the cards.
  • The recovery has been uneven, but a number of industries have recouped most of the jobs lost to COVID-19.
  • A number of industries still have a long way to go, and many may never recover all of the jobs lost from COVID as businesses shift their business models.

SAN DIEGO TOURISM ON THE UPSWING

San Diego’s accommodation sector is holding its own despite another wave of COVID-related closures amid a spike in cases. Hotels in particular are closing out the summer on a high note, with the supply of rooms within striking distance of pre-COVID levels as of mid-August. The average daily rate (ADR) for rooms is climbing back somewhat more slowly but, at about $150 per night, is up some 67.4% from COVID lows in early May.

It took about a month, but as the COVID downturn intensified, accommodation employment tracked changes in room supply and average daily rates nearly one-for-one. That relationship would have suggested that accommodation employment should have grown by about 3,500 positions in July. Instead, employers only added back just 100 jobs, signaling caution on the part of hotels as the economy slowly climbs out of the crater left by the COVID-19 outbreak.

The caution within the industry makes sense. Laying off workers is painful for employers and employees alike, which is a likely reason why hotel employment didn’t falter until April and May, even though the impacts of COVID were felt as early as March. Similarly, instead of bringing workers back on just to have to let them go again in the event of another flare-up of the virus accompanied by additional closures, hotel managers may be taking a wait-and-see approach to rehiring. Nonetheless, recent industry performance suggests that hotels should be bringing about 8,000 to 8,500 workers back on to accommodate the increase in room supply and rates over the past couple of months once they feel it’s safe to do so.

As of the July employment report, accommodation employment rested at 17,800, up 43.4% from May’s low of 12,400 but still 43.3% below its pre-COVID peak of 31,400 in February. Given that expected hotel revenues—measured by the room supply multiplied by average daily rates—are just 16.5% below pre-COVID levels, employment should quickly follow. An increase of 8,000-plus employees would bring hotel employment more in line with expected foot traffic at hotels and would follow the trend seen so far during the downturn.

SAN DIEGO FACES AN UNEVEN RECOVERY

To say that the COVID downturn and subsequent recovery have been uneven across industries would be an understatement. The hotel industry’s improvement is encouraging, and a number of industries are at or near their pre-COVID employment levels, including: Heavy and civil engineering construction; building equipment contractors; computer and electronic product manufacturing; aerospace manufacturing; grocers; securities and commodities investment; and scientific research and development services.

However, total nonfarm employment in San Diego is still down 10.5% from February due in large part to slower rehiring in industries like restaurants and bars; personal services, such as dry cleaners and other laundry services as people work from home; and local government education, likely reflecting school jobs aside from teachers—like administrators, janitors, etc.—as the county waits to resume in-person teaching.

Unfortunately, many of these jobs will be slow to come back due to their face-to-face nature. What’s worse, many of those positions may not return at all. Even with the advent of a safe and effective vaccine, many businesses have changed their fundamental business models and have adopted new operational norms—like Twitter, who made working remote a permanent option for employees. As a result, the same positions required for those companies before the COVID outbreak may no longer be necessary to operate in the post-COVID world.

The impact of COVID has not only affected the lowest-paid among us in San Diego, but it has hurt communities of color the worst. Now, more than ever, targeted and effective solutions are needed to help these communities not just recover but thrive in the future. Reskilling and training of the workforce and offering equal access to capital for minority-owned businesses are not just ethical and moral necessities—they are economic ones, too. Because, we all do better when everyone is doing better; and a more resilient San Diego economy will help us all in the long-run.

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

Regardless of how this all plays out, 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: Fresh thinking on career advancement is needed

THE TAKEAWAYS

  • Fresh thinking on career advancement is needed in order to create a more resilient San Diego economy.
  • San Diego’s lowest-paid workers were the first to be let go during the COVID downturn and will likely be the last to be called back to work.
  • Upskilling and reskilling employees in lower-paying sectors like retail and leisure and hospitality will improve living standards and help businesses in other industries find qualified talent without draining the pool of workers for retailers, restaurants, and bars.
  • Colleges and universities will need to rethink curricular requirements in order to adapt to the changing needs of the business community.

San Diego’s economy has emerged from the depths of the COVID downturn, but the road to a full recovery is looking longer (and bumpier) than many expected. A second wave of business shutdowns and restrictions amid a rise in positive cases last month portends a significant weakening in the outlook heading into late summer and fall.

The unexpected and historically severe drag on San Diego’s job market since March underscores the need to build a more resilient workforce that can better weather future downturns. More than half of the 223,700 jobs shed between February and April were in leisure and hospitality and retail alone. These jobs could be slow to come back, since shops, restaurants, bars, and venues won’t be able to operate at full capacity until an effective and safe vaccine has been widely produced and distributed—something that’s not expected until at least early next year.

THE MOST VULNERABLE HAVE BECOME THE MOST VULNERABLE…AGAIN

Other sectors have undoubtedly been rocked by the economic shockwave of the COVID pandemic, but retail and leisure and hospitality workers were especially susceptible, particularly those in accommodation and food services. Not only were they the first to be let go, but many will likely the last to be rehired. What’s worse, San Diego’s accommodation and food service employees made just over $30,000, on average, last year compared to about $74,000 for all workers.

The outsize damage to leisure and retail is not isolated to just the past few months. Both industries have historically been more volatile over the past few decades. During the Great Recession of 2007-2009, total nonfarm employment in San Diego fell 8.9%. However, retail employment tumbled 16.2% and leisure and hospitality gave up 14.1%. It stands to reason that a similar dynamic could play out when the next downturn inevitably arrives.

TAPPING INTO NEW TALENT

Tourism, which includes retailers, accommodation, and eating and drinking establishments, is a large and important piece of the economic pie (pun intended) here in San Diego. Luckily, tourism-related industries have a huge supply of readily available workers. Upskilling and reskilling of many of the employees looking to get out of hospitality could expand the base of workers in relatively higher-paying, less volatile occupations without draining the pool of qualified workers for local restaurants, bars, and hotels. This could be extended to retail and other lower-paying sectors and would simultaneously improve living standards while alleviating stress on local employers who can’t find qualified talent in non-tourism fields. It would likely keep a greater number of people employed during future downturns, too.

Looking at job postings data for the region, local employers have had a tough time filling roles in a wide variety of occupations. Software developer and engineering roles are ubiquitous on lists like these, but it extends well beyond the buzzy positions du jour and includes others like marketing managers, sales reps, and truck drivers. The average annual pay for these and other in-demand positions is over $63,000 per year versus $36,720 for jobs where more than enough applicants can apply.

SO, WHAT’S THE CATCH?

As usual, the devil’s in the details. Even after things begin to normalize, walking out on one’s barista job to immediately pursue a post-secondary degree in electrical engineering typically isn’t an option. Consequently, career advancement would have to occur more gradually and require some serious curricular agility from local colleges and universities.

EDC’s Advancing San Diego initiative is exploring a viable path forward. The initiative serves to boost lower-paid employees into more stable, higher paying jobs with greater potential for upward mobility, called “lifeboat jobs.” An example would be someone like a forklift operator at a local factory who could ultimately climb the rungs into Operations Management.

With better connectivity to academia, business leaders can begin to communicate the specific skills required to successfully perform lifeboat jobs in any number of high-demand positions. Then, local colleges and universities could build out “micro-credential” certificates or academic programs designed to prepare workers in a matter of weeks—rather than years—to take on those jobs.

Given the deeply-seeded roots of tradition in academia, this would likely emerge most immediately as a strategy in the universe of Continuing or Extended Studies. However, the swiftly evolving landscape of business in the 21st century seems to suggest that a more targeted and flexible approach to general coursework would provide the best value for students (and parents) and would also be of great service to businesses looking for a reliable pipeline of skilled workers upon graduation.

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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