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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Economy in crisis: SD job market rout continues, but opportunities emerge

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. 

San Diego’s economy remains on hold as efforts to contain the COVID-19 virus continue. Roughly 3.5 million Californians have filed for unemployment benefits since March, comprising 13% of the US total. The number of active unemployment insurance claims in California is already triple the peak experienced during the 2008-2009 Great Recession, and it’s likely that the unemployment rate in San Diego will easily surpass the 11.1% peak reached during that time.

The job market rout is yet to be captured in the official employment data. According to the most recent jobs report, San Diego shed just over 10,000 jobs in March. However, last month’s employment numbers understate the full extent of job losses.

The impact on vulnerable local industries has been studied and documented. However, industry disruptions beyond arts & recreation, retail, wholesale, and accommodation & food services are becoming apparent. Oil and energy-related companies and non-emergency healthcare providers have shared in the pain.

Businesses with strong ties to oil have only a small footprint in the region, so the steep slide in crude prices in recent weeks is not likely to reverberate too loudly throughout the local economy. However, the healthcare industry runs fairly deep, accounting for roughly one in 10 local jobs. Hospitals and doctors’ offices—which are in high demand as the number of Coronavirus diagnoses has increased—employ between 60,000 and 65,000 people, but that still leaves well over 100,000 at-risk positions. Moreover, an estimated 460 additional jobs are lost in other sectors for every 1,000 jobs lost in non-emergency healthcare. Making matters worse is that employment estimates are notoriously unreliable during times of stress, and it could take months of data revisions before an accurate picture of the job market emerges.

building a stronger, more inclusive San Diego

Despite the immense pain and stress this downturn has caused, the coming recovery presents a prime opportunity to rebuild San Diego’s economy in a more inclusive, equitable way. A path can be built to link workers to training programs to prepare them for careers in industries that are struggling to fill open positions that pay considerably better and typically provide benefits. For example, health diagnostics and treatment occupations accounted for six times the share of job postings than total hires between 2016 and 2020, implying a severe shortage of qualified applicants. This is not isolated to just STEM-based positions, either; a similar trend has emerged for advertising, marketing, promotions, public relations, and sales managers.

According to Emsi, there was a 21% reduction in job postings over the past 30 days, including for the high-demand occupations listed above. Company hiring – or job postings – is expected to fall further before the crisis ends.  By looking at the imbalance of labor demand in the market, we can help shepherd workers toward occupations struggling to find talent. When viewed through a demand lens, we can take a targeted approach to develop training programs that may leave thousands of San Diegans better off than they were before the COVID-19 outbreak.

An Opportunity for Small Business Success

This recovery will also provide a chance to focus on small business formation and success among women and people of color who, historically, have been marginalized and received less access to startup capital. Nearly 96% of San Diego companies employ fewer than 50 workers and 61% employ fewer than 10 people, making this an especially important initiative to undertake.Pie chart of SD small businesses by number of employees

The “when” of the recovery remains a huge question mark, but the “how” of the recovery is coming into focus. EDC’s mission is to maximize prosperity within the region, and the opportunity to build a stronger, more resilient San Diego has arguably never been better than it is right now.

COVID-19 Recovery Resources

Regardless of how this all plays out, EDC is here to help. You can use the button below to request our assistance

Request EDC assistance

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

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Economy in crisis: unemployment claims at a record high, as SD looks to minimize virus’ spread

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 survey of local businesses shows that the impacts of the COVID-19 outbreak on San Diego’s economy are vast, amidst signs of resiliency. These results are corroborated by official data, both nationally and in California.

The survey will remain open, and results will be used to track business sentiment over time. To take the survey, please click here.

UNEMPLOYMENT: WHAT THE DATA Is (AND Isn’t) SAYING

United States

According to the Labor Department, initial claims for unemployment insurance have skyrocketed across the US in recent weeks. Claims jumped to 3.3 million for the week ending March 21 and more than doubled the week after, topping 6.8 million. Both weeks smashed the previous record of 695,000 new claims in 1982. The monthly tally of 10.7 million in March 2020 is nearly 3.5 times the number of claims filed in May 2009, the worst month of the Great Recession. Claims also appear to be poised for another record-breaking month, with another 6.6 million reported for the week ending April 4.

California

Closer to home, new filings for unemployment in California increased to 186,000 for the week ending March 21 and topped a million for the week ending March 28, eclipsing the previous record of 115,000 claims before the COVID-19 outbreak. Initial claims “eased” somewhat to 925,000 in the week ending April 4, but like the national figure, remain substantially elevated.

With such a meteoric rise in the number of claims being filed, it is likely that state labor agencies, including the California Employment Development Department, are struggling to immediately process them all, which would lead to a lower number of claims initially being reported. This suggests a much higher number of claims will be reported in the coming weeks as backlogged applications are processed and may make it somewhat more difficult to determine the point where stress in the job market begins to subside if the system is still processing backlogged applications after actual claims have begun to decline. Nonetheless, the trend is unmistakable: like the rest of the nation, a record number of Californians are filing for unemployment, in line with the survey results provided by local businesses.

San Diego

Unfortunately, unemployment insurance data is not reported at the metropolitan or county level, and San Diego job market data is reported on a roughly four-week lag – March employment estimates for San Diego will be available from the Bureau of Labor Statistics (BLS) on April 29. However, it is expected that the estimates made available by the BLS in the coming months will paint a bleak picture of the local job market given the sharp spike in unemployment benefits across the state, and the local prevalence of eating and drinking establishments, retailers, wholesalers, and entertainment venues, which have all been disproportionately impacted by the outbreak of COVID-19. Together, these industries accounted for about one in four local jobs and $18.5 billion in salaries and wages in 2019—jobs and income that are now at risk during the pandemic and likely to see large reductions in upcoming job reports. Also, given the deep roots of those industries in the local economy, the ripple effects of job losses would be significant: for every 1,000 jobs lost in retail, wholesale, the arts, or food services, an estimated 500 jobs would be lost in other industries across San Diego.

A Silver Lining

Unlike most downturns precipitated by economic or market imbalances, this downturn was brought on by a non-economic, Black Swan event during an otherwise healthy economic expansion. At 3 percent, San Diego’s unemployment rate was well below the state and national averages, local earnings were climbing at a healthy pace, and the housing market was flourishing.

Given the strong economic conditions in San Diego before the outbreak, chances are good that the economy could bounce back fairly quickly, especially once travel and tourism come back nationally. However, timing will be key in determining the pace at which local businesses recover once this is over. The more economic pain endured right now as communities limit the spread of the virus, the better the chances of a full and speedy recovery.  Conversely, the recovery could be much slower if the virus is not effectively contained, and local businesses and households are forced to draw on lines of credit for extended periods of time to weather the downturn.

COVID-19 Recovery Resources

Regardless of how this all plays out, EDC is here to help.

Request EDC assistance

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

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