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: Job growth slows as we head into New Year

KEY TAKEAWAYS

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

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

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

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

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

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

SOFT END TO THE YEAR?

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

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

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

MIXING THE INGREDIENTS TOGETHER

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

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

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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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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.

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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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.

 

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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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