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.

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San Diego’s economic recovery must be inclusive.

A note from Our board chair

In 1967, my parents fled Cuba to seek freedom and a better life in the United States. Due to travel restrictions, they were forced to move to Spain, where I was born, before finally arriving in the City of Chicago in January 1968. My parents never dreamed that within a generation, their son would become a senior executive at one of the largest financial institutions in the world. Growing up in the Rogers Park neighborhood of Chicago, I certainly never thought that the community I would find myself living and investing in all these years later would be San Diego, California. Yet here I am.

As I take on the role of board chair for the next two years at San Diego Regional EDC, I am fortunate, blessed, and humbled by the opportunities that life has given me. I also recognize that my story is not the norm for Latino immigrants in this country and that my journey thus far is not particularly common for a city kid from Chicago. I feel both an obligation and responsibility to use this time at EDC wisely, effectively, and purposefully. And as the threats and realities of COVID-19 and racial injustice continue to grip our community and our economy, like many, I feel the urgency and the need to accelerate the recovery that lies in front of us.

From the years following the Great Depression to those following the Great Recession, every recovery that the American economy has experienced has increased systemic poverty and widened the inequalities in Latino and African American communities. Too often, in a rush to restore economic normalcy for some, entire segments of our communities have been left further behind and unable to find and maintain their footing on a new and changing economic foundation. Our commitment at EDC is to do everything we can—drawing on the breadth and depth of every partnership and relationship we have—to get this recovery right.

This recovery requires us to redouble our commitment to inclusive economic growth, so that we build back a San Diego that is more resilient because prosperity reaches more people. Even in the midst of great economic uncertainty, we know one thing for sure: the innovation economy will lead us out of this recession just like it has every one before it. If the business community is thoughtful, strategic, and collaborative in this moment, we can ensure a stronger, bolder, more resilient San Diego in the years ahead.

The building blocks are clear: skilled talent, quality jobs, and thriving households.

  1. The hottest job market in a generation has become the weakest. However, there are still shortages for in-demand jobs. This means we need to do better at equipping San Diegans for the jobs of today, and those of tomorrow.
  1. Nearly 30% of small businesses have closed. And we know small businesses employ the majority of San Diegans. This means we must invest in entrepreneurship and resiliency by creating opportunities for diverse founders, and better connecting small businesses to big customers.
  1. Housing prices and unemployment are both at record highs. The economy cannot recover if people cannot afford to live here. This means we must prioritize access to and affordability of the essential infrastructure that working families rely upon—like housing, childcare, and broadband.

If past economic, financial, education, and workforce decisions have exacerbated systemic poverty and created barriers to opportunity for so many, it follows that the decisions we make now can change the future for our children and grandchildren. And with nearly 200 of the region’s largest employers, hundreds of community partners, and the proud legacies of my family and culture behind me—I plan on seeing San Diego Regional EDC through a period of historic and inclusive growth. We will get this recovery right.

—Julian Parra, EDC board chair
& SVP, Region Executive, Pacific Southwest Business Banking, Bank of America

Visit our Inclusive Recovery page for more

See Julian’s op-ed in the San Diego Union-Tribune

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.

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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.

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Economy in crisis: July jobs report likely to be overhyped

THE TAKEAWAYS

  • The July jobs report is likely to look better than it should because of the timing of data collection by the Labor Department.
  • San Diego’s tourism sector continued to recover through mid-July, before renewed shutdown orders were given, but U.S. air travel remains well below year-ago levels.
  • Any setback from last week’s partial shutdown is unlikely to show up until the August jobs numbers are released.

First, it’s important to note that the May employment report was revised 7,300 lower, making for a net 46,700 positions added in June to May’s pre-revised figure—almost exactly matching our prediction for 45,000 net new positions.

June’s employment report also aligned with expectations; San Diego employers added 54,000 jobs last month. The additional jobs lowered the local unemployment rate from 15.2 percent (revised higher from an initial estimate of 15.0 percent) to 13.9 percent. However, this is still nearly 3 percentage points higher than the national rate of 11.2 percent in June, due in large part to the higher concentration of food services, retail, and tourism in San Diego, which were ravaged by the COVID-19 downturn.

Even though June’s numbers were just released, it’s never too early to look ahead to the July report. With San Diego partially shutting down again last week, conventional wisdom suggests that the July report will show a fresh spate of job losses. However, timing is key. The July employment figures will be estimated using data collected the week of July 12, 2020. Therefore, any layoffs from last week’s move to shut down bars, indoor dining areas, museums, zoos, and hair salons will probably not be picked up in July’s report. In other words, the July employment report will most likely look better on the surface than it would had the data spanned through the end of the month—wrongfully implying that the regional economy fared better than it actually did in July.

TOURISM FORGES AHEAD…

Local tourism has a long road ahead of it before it fully recovers, but hotel occupancy data produced by the San Diego Tourism Authority through July 11, 2020 show that both the demand for and supply of hotel rooms has continued to rise since bottoming in April. Average daily rates for rooms in the region have also continued to increase. We can anticipate changes to accommodation employment given its tight relationship to the room supply and daily rental rates, since hotels need to be sufficiently staffed to manage tourist traffic in any given week.

Before the COVID-19 outbreak, San Diego hotels employed 31,400 workers. That number was slashed by more than 60 percent after statewide shutdown orders in March. The industry added back 5,900—or roughly one in three—of the jobs lost to COVID-19 shutdowns in June. And the tight relationship between hotel occupancy, room rates, and employment suggests that accommodation services could be shown in July to have recouped another 2,500 to 3,000 jobs, bringing total industry employment back above 20,000 for the first time since March.

…BUT…

TSA data shows a painfully slow recovery in air travel, with throughput at U.S. airports over the past week down an average of 74 percent from a year ago. Given San Diego’s stature as an international tourism destination, the lack of jet-setter traffic through airports means that San Diego hotels will face an uphill battle to fill open rooms. This underscores the tenuous nature of local tourism’s comeback.

 

LOOKING AHEAD

National employment numbers will shed some more light on what we can expect to see locally in the July jobs report. However, any positive takeaways from that report should be taken with a grain of salt, since the most recent round of local shutdowns will undoubtedly mean that companies have to once again let go of employees. The magnitude of job losses will hinge on the duration of the current shutdown, which is contingent on a number of metrics, including the rate of positive COVID-19 tests across the county, number of community outbreaks in a given week, and local hospital and ICU capacity, just to name a few.

Taken together, July’s employment report is more than likely to present another round of job gains, but August’s report is almost certain to reveal a setback in the recovery—although, how big of a setback won’t be clear for at least another several weeks. Moving forward, job training and retraining services will be increasingly vital to the long-term health of the economy, since temporary layoffs are more likely to become permanent ones in the coming months if businesses remain limited to partial operating capacity.

This is not to say that we advocate reopening at the risk of public healthinstead, we are advocating for a path to opportunity for San Diego’s most vulnerable workers to reduce their reliance on inherently volatile industries and occupations.

 

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.

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Economy in crisis: Another round of uncertainty

The takeaways

  • A solid U.S. jobs report suggests that, in June, San Diego may have recovered as many as 45,000 of the jobs lost to COVID, more than half of which are from leisure/hospitality and retail.
  • The San Diego jobs recovery lags the nation’s somewhat as local businesses reopened later than those in other parts of the country.
  • Persistently high continuing UI claims in California, fresh business closures, and a shift in unemployment from temporary to permanent significantly cloud the near-term outlook.

The Good…

The U.S. job market took another big step forward in June, adding a better than expected 4.8 million payroll jobs. Last month’s report indicates that, in May and June alone, the U.S. recouped roughly 40 percent of the jobs lost to COVID-19. For context, it took the nation 17 months during the Great Recession of 2007 to 2009 to recover 40 percent of the jobs lost during that downturn. In addition, the unemployment rate slid lower to 11.1 percent from 13.3 percent the month prior (although the topline figure alone is misleading—more to follow on that below).

While San Diego’s job market doesn’t necessarily mirror the nation’s, the U.S. employment report can still provide valuable information on what to expect locally in a given month. Looking at the historical relationship for employment in San Diego and the U.S., it’s possible that San Diego may have added back about 45,000 jobs in June, more than half of which could be attributed to leisure/hospitality and retail. Combined with May’s gain of 18,200 jobs, this would mean that roughly 30 to 35 percent of the jobs lost from COVID will have been recovered. The slower pace of recovery compared with the U.S. as a whole can be partly explained by local retailers and restaurants reopening later here than in some other parts of the country.

If history is a guide, then the U.S. job numbers would imply an additional 18,000 to 20,000 leisure/hospitality positions, which would add up to roughly 20 percent of the jobs lost from February to April. In addition, the national figures imply a local recovery of between 7,000 and 8,000 retail positions, or about one in three jobs lost to COVID.

The addition of 7,000 to 8,000 retail jobs in June is slightly higher than our analysis of employment gains due to a rebound in U.S. retail sales that suggested San Diego retailers would add back closer to 6,000 to 6,500 jobs in June. However, the way by which national retail sales figures are averaged would have meant that the number of recovered local jobs could certainly be higher, making the estimate for 7,000 to 8,000 reclaimed positions not implausible.

…The Bad, and the (potentially) ugly

Unfortunately, other data points and recent events significantly cloud the near-term outlook.

Continuing claims for unemployment insurance in California, which are closely correlated to San Diego unemployment, have remained stubbornly high, increasing from an average of 2.83 million in May to 2.89 million in June. On its own, this would suggest a slight increase in the local unemployment rate from 15 percent in May to 15.2 percent in June.

In addition, state, county, and city officials have rolled back reopenings for bars, indoor restaurants, theaters, tasting rooms, and museums until the end of July, which could mean another round of layoffs will show up in the July employment report. The share of people testing positive for COVID-19 has increased from two to three percent for most of May and early June to six to seven percent. Moreover, the number of community outbreaks has reached double-digits in recent weeks, and the county reported more than 1,000 new cases over the Fourth of July weekend alone, prompting the closures.

Finally, despite the drop in the topline U.S. unemployment rate in June, the number of people whose unemployment shifted from temporary to permanent increased by nearly 600,000, bringing the number of permanently laid off workers to a six-year high. If a similar trend takes hold in San Diego, then the jobs recovery could take longer, because permanently laid off workers are more likely to become discouraged, drop out of the labor force, and lose valuable skills, making them significantly less likely to re-enter the job market. As such, it is crucial that these workers have ample access to job training to enhance their skills, keep them engaged, and increase the chances that the coming recovery leads to a more inclusive and resilient San Diego economy going forward.

Taken together, the June employment report—due out July 17—will almost certainly reveal solid monthly job gains. However, other indicators suggest that the labor market is unlikely to enjoy a smooth upward trajectory from here on out. The coming recovery is bound to be rife with bumps, hiccups, twists, and turns this year into next.

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: Retail likely to rebound in June

San Diego’s May employment report roundly beat expectations. Against all odds, the region recovered 18,200 jobs lost during COVID-19. While this represents less than 10 percent of the 223,700 payrolls lost from February to April 2020, it’s still a promising sign that the local job market has turned the corner. Eating and drinking establishments, ambulatory healthcare, and construction each saw impressive rebounds in May 2020. Conspicuously absent from last month’s turnaround, however, was retail.

Clothing stores alone have accounted for more than a third of all retail-based layoffs, and nearly two in every three clothing store workers were let go from February to May. That is even more severe than the losses suffered by restaurants and bars, which cut nearly half of their staffs during the COVID outbreak.

Since February, retail jobs lost have totaled 24,000, with 300 workers let go in May. While May’s retail job losses aren’t alarming in the context of COVID, it indicates that the industry is yet to initiate a recovery.

GREEN SHOOTS

Nascent signs are emerging that retail’s long-awaited rebound moment has come. Locally, many shops reopened their doors to customers in June with modified social distancing protocols in place. This is similar to other parts of the country last month, leading to May’s record 17.7 percent jump in U.S. retail sales. Now that San Diego retailers have also reopened, it’s not unreasonable to assume a bounce back similar to May’s national retail sales figure could emerge locally in June.

An impact analysis that links local retail sales to employment suggests that if the same trends in the U.S. retail sales report were to play out here, we could expect a little more than 6,000 of the 24,000 retail jobs lost between February and May to be recovered in June alone. Sales at U.S. clothing stores rebounded an astonishing 188 percent in May. A similar spike in sales receipts in San Diego would be consistent with a June recovery of roughly 3,000—or two in five—of the 8,200 jobs lost at clothing stores from February to May. That is even more impressive than May’s 15 percent jobs rebound at eating and drinking establishments, and would bring the retail recovery more in line with other industries after a false start of sorts last month.

While this analysis is in line with the broader national trend, there are several caveats to consider.

First, the above only looks at one data point, which is a national sales report that may not reflect all of the idiosyncrasies of the San Diego retail industry. Additional data in the coming weeks, including June’s U.S. jobs report, will allow us to refine the estimates above.

Second, the 17.7 percent jump in U.S. retail sales reflects a weighted average of different—and potentially conflicting—regional trends. In other words, May’s rebound in retail sales may have been even stronger in newly reopened parts of the country than the topline figure of 17.7 percent would suggest. That is because the sales bump in those regions would have had to more than make up for steady or falling sales in other states like New York and California that hadn’t yet fully reopened.

Finally, any recovery could prove to be a false positive if thresholds are triggered that cause local, county, or state officials to pause or even walk back reopening.

Taken together, barring a spike in COVID cases, it looks like retail will finally join in the recovery. June’s employment report, which is due to be released on July 17, should ultimately confirm this. We’ll be reporting back on the health of retail and other industries as more data become available.

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 jobs report for May might not be as bad as initially feared

  • EDC projects SD unemployment to peak at around 16 percent in May, far less than externally produced estimates of 30 percent or more
  • While the U.S. recovered jobs in May, gains are most likely concentrated in states and cities that have reopened ahead of California
  • SD job growth will resume in the Summer months but could level off in the Fall until a vaccine is widely available

May’s employment picture might not be as bad as initially feared. A couple of weeks ago, we published a report that stated the May job cuts in San Diego could potentially be on par with the extraordinary losses suffered in April’s employment report. Those numbers were based on estimates for local retail sales along with city and county unemployment rates that were produced externally. While the estimates for more than a 50 percent decline in retail sales from February to May don’t seem unreasonable, it appears that the May unemployment rate projection of 30 percent or higher is well above the official rate to be reported by the Labor Department on June 19.

OUTLOOK IMPROVES ON INCOMING DATA

San Diego unemployment correlates closely with California continuing unemployment insurance (“UI”) claims. Continuing UI claims in California averaged about 2.9 million in May—above the 2.6 million registered in April, but certainly not enough to double unemployment across the state, including San Diego. EDC estimates that May unemployment in the region will be reported at closer to 16 percent, up from 15 percent in April and nearly half the rate estimated earlier during the pandemic.

EDC’s much lower unemployment projection is supported by incoming state and national data. For instance, the U.S. unemployment rate was reported as 13.3 percent in May, down from 14.7 percent in April. San Diego unemployment has differed from the national rate at times, but the probability that San Diego unemployment would have settled at a level at or above 30 percent given the lower national figure is, in essence, a statistical impossibility.

Additionally, the ADP national employment report showed that small business job losses slowed considerably in May from April. Small businesses employ 45 percent of the San Diego workforce, compared with just 29 percent nationally, suggesting that layoffs have abated for a wider swath of the local labor force than for the U.S. as a whole.

Taken together, the May jobs report for San Diego is anticipated to show an additional 10,000 to 15,000 job losses. While it would have been unfathomable to cheer on such a report just a few months ago, it is far less than the 150,000 to 175,000 job cuts implied by the 30 percent unemployment estimates produced earlier and also strongly suggests that the worst of the COVID slowdown has passed.

THE ELEPHANT IN THE ROOM

The May job cuts projected by EDC for San Diego may seem to contradict the official U.S. job figures released last Friday that showed 2.5 million job gains and a lower unemployment rate. However, the gains in the national report almost certainly reflect jobs that were recovered in states and cities that reopened ahead of California. San Diego has moved to reopen somewhat faster than other areas of the state. Even so, it would be surprising if local job growth is registered ahead of the June employment report, because the May employment figures were estimated on data received during the week of May 12, before local businesses began to reopen.

THE ROAD AHEAD

Barring a second wave of COVID-19, employment in San Diego is expected to start climbing again in June, but the region is unlikely to recoup the jobs lost since February for quite some time. Businesses will call back a sizable portion of their workers as they reopen, but a return to normal for the local job market won’t take hold until after a vaccine has been made widely available. After an initial bump in the summer months, job growth will likely continue at a much more measured pace until consumers begin to feel comfortable venturing out into larger crowds and businesses can once again operate at full capacity—something that most likely will not happen before 2021.

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: More disappointing numbers to come, but the worst is likely behind us

We’ve seen and heard the unemployment numbers. But what does all of this really mean for our economic recovery in San Diego? Welcome to the ‘economy in crisis’ series – a bi-weekly breakdown of data at the national, state, and local level in the shadows of COVID-19.

10 YEARS OF JOB GROWTH LIKELY UNDONE IN 10 WEEKS

As expected, April’s jobs report was one for the record books. San Diego lost some 195,000 jobs, with especially steep cuts seen in accommodation & food services and retail as stay-at-home orders to curb the spread of COVID-19 essentially halted foot traffic to local restaurants, bars, music venues, and shops. Unemployment hit a historically high rate of 15 percent. March’s numbers were revised lower to reveal 10,400 fewer payroll jobs, bringing the total number of losses to 205,400 compared with the initial March estimates and roughly in line with our call for losses of about 230,000 jobs last month.

The April jobs report only measured employment as of the week of April 12, which means any additional job losses during the second half of April and first half of this month won’t be picked up until the May employment report due on June 19. Weekly unemployment estimates from Applied Geographic Solutions (AGS) indicate that unemployment in San Diego County may have been as high as 30.1 percent for the week ending May 9, with some zip codes in and around downtown potentially experiencing jobless rates of more than 40 percent. This is well above the U.S. estimate of 22.75 percent provided by AGS and implies that the May report could show an additional 10 to 15 percentage point climb in the unemployment rate from April.

Weekly retail sales estimates compiled by the San Diego Association of Governments (SANDAG) reveal a 43 percent reduction in receipts by San Diego retailers in April. Further, SANDAG anticipates a cumulative reduction in retail sales of more than 50 percent in May compared with pre-COVID sales levels—not an unreasonable assumption given the wide-ranging impact of stay-at home orders on retailers since March. If realized, the SANDAG retail sales forecast for May could mean another 70,000 to 75,000 job losses at retailers in the May employment report, even accounting for steady or growing receipts at supermarkets, bargain clubs, and drug stores. Taken together, if AGS’ unemployment estimates are accurate and SANDAG’s retail sales projections come to fruition, the May jobs report may reveal another round of record-breaking job losses similar to those reported for April.

LIGHT AT THE END OF THE TUNNEL

But there’s some good news: the worst has likely passed. With the City and County moving to gradually reopen the economy, businesses that have been able to hold on this long will likely be able to make it to the other side without having to initiate additional mass layoffs, at least not on the scale seen so far. The pace of initial jobless claims in California remains elevated but has slowed considerably. Now the focus will be on assessing continuing jobless claims, since those will indicate how many people have been able to get back to work.

The next great hurdle will be replacing lost jobs, especially for workers whose former employers were forced to shut down in the wake of the outbreak. This will require a balance between new businesses forming and targeted worker training programs to help connect people who are out of work with companies in higher-paying, more stable fields who are struggling to source employees. It could take several years before San Diego businesses lost during the COVID crisis are replaced, and worker retraining could get the workforce back on track much more quickly.

Of course, this would require public funding, which is scarce after several waves of fiscal stimulus. However, it would likely cost less to train employees and get them back into the workforce quickly than the amount of foregone income tax revenues, additional unemployment expenditures and longer-term government welfare programs that would be required as they wait for positions in their pre-COVID fields to open back up. Additionally, it is in the region’s best interest to get people back to work as quickly as possible, because job skills erode quickly as workers remain out of the workforce, which dramatically lowers their odds of ever re-entering the job market.

COVID-19 RECOVERY RESOURCES

As a partner of the local San Diego and Imperial Small Business Development Center, EDC is working directly with small businesses – free of charge – to counsel them on accessing COVID-19 recovery resources.

Request EDC assistance

For general COVID-19 recovery resources and information, please view this page.

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Economy in crisis: April jobs reports likely to reveal record SD job losses

We’ve seen and heard the unemployment numbers. But what does all of this really mean for our economic recovery in San Diego? Welcome to the ‘economy in crisis’ series – a bi-weekly breakdown of data at the national, state, and local level in the shadows of Covid-19.

A Record-setting jobs report

Incoming data confirmed what most of us already knew: The U.S. economy lost a record number of jobs in April. The Bureau of Labor Statistics (BLS) reported that the economy shed 20.5 million payroll jobs, lifting the unemployment rate to 14.7%, a rate unseen since the Great Depression. Job losses were spread across every industry, but cuts were especially severe in leisure & hospitality, which gave up some 7.7 million positions.

The BLS data are roughly consistent with payroll processor ADP’s employment report that shows 20.2 million job losses at private companies last month. Similar to the BLS, ADP reported that cuts were heavily concentrated in leisure & hospitality. ADP also measured employment changes across different firm sizes, and showed that companies employing fewer than 50 workers let go of 6 million workers in April.

SDREDC bart chart shows small firms experienced largest job losses in April 2020

What the U.S. numbers could mean locally

The crater in small business employment across the U.S. last month could portend an especially bad jobs report locally. Businesses with fewer than 50 workers employ 45% of San Diegans, compared with just 29% nationally. Job losses on the scale of the national figure would imply roughly 120,000 fewer payrolls at San Diego small businesses in April alone, roughly the same number of jobs lost across businesses of all sizes between December 2007 and January 2010 during the last recession.

Cutting the data across industries is equally disarming. Accommodation & food service companies employ about one in every 10 local workers. Both the BLS and ADP reports show that hospitality businesses essentially halved their staffs last month; a similar contraction in San Diego would translate to about 85,000 to 90,000 lost jobs. However, San Diego hospitality employment has historically been more sensitive to downturns than nationally, meaning as many as 120,000, or nearly two in three, hospitality workers may have potentially been put out of work.

Retail employment is also touchier to fluctuations in the local economy than it is nationally. San Diego retailers may have eliminated more than 25,000 payrolls based on the 2.1 million jobs cut across the U.S. last month.

The damage doesn’t end with hospitality and retail, although losses in other industries are not nearly on the same scale. The BLS reported 980,000 public sector job cuts, and local government, which employs public school teachers, accounted for 801,000 of those. Another industry with a large local footprint—professional and technical services—gave up 520,700 positions nationally. Together, an additional loss of around 15,000 local payrolls from these two sectors could be reasonably estimated based on historical relationships between local and national employment changes.

All in, San Diego is looking at a potential loss of about 230,000 jobs in April if history serves. This would be nearly double the losses suffered during the 2008-2009 crisis and could potentially bring the unemployment rate up to a range as high as 18% to 20%. The official April jobs numbers for San Diego will be reported on Friday, May 22.

Several points bear mentioning: First, the above discussion is only meant to provide a sense of scale around local job market impacts if similar dynamics seen in the national employment report were to play out here. Second, no sector or cluster is immune to downturns. So, while government and professional services haven’t yet experienced losses on the scale of accommodation & food services, there’s always a chance that the effects of COVID-19 could ripple out into these industries. Finally, while it may be encouraging that higher-paying professional and government positions haven’t given as much ground as lower-paying ones, the disproportionate pain experienced by the most vulnerable workers should give us pause.

The coming recovery presents an opportunity to establish career development programs designed to connect lower-paid workers with jobs in industries that are struggling to attract talent. EDC’s Advancing San Diego program – which is currently recruiting local educational providers that develop skilled engineering talent – is helping San Diego inch closer to its goal of producing 20k additional skilled workers per year.  Programs like this are a win-win situation that promises a brighter future for thousands of San Diegans and a more resilient economy that could better weather future downturns.

COVID-19 RECOVERY RESOURCES

As a partner of the local San Diego and Imperial Small Business Development Center, EDC is working directly with small businesses  – free of charge – to counsel them on accessing COVID-19 recovery resources.

Request EDC assistance

For general COVID-19 recovery resources and information, please view this page.

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