San Diego’s Economic Pulse: January 2021

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

Key Takeaways

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

Labor Market Overview

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

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

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

Industry View

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

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

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

Behind the Numbers

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

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

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

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

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

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

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

Learn more about San Diego’s right recovery

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Economy in crisis: Structural challenges will persist after economy recovers

Key Takeaways

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

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

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

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

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

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

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

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

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

HOMEOWNERSHIP EVEN LESS ATTAINABLE

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

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

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

WE MUST TAKE ACTION

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

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

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

Learn more about San Diego’s right recovery

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San Diego’s Economic Pulse: December 2020

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

Key Takeaways

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

Labor Market Overview

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

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

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

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

Retail Sales Decline

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

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

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

 

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

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

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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

Senior Manager, Research

San Diego’s Economic Pulse: November 2020

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

KEY TAKEAWAYS

  1. San Diego’s jobs recovery accelerated in October from previous months, but remains uneven across industries.
  1. San Diego employers brought back 21,500 workers, lowering the unemployment rate from 8.9 percent to 7.7 percent.
  1. Job gains were widespread, and workers returned to the labor force in record numbers.

San Diego’s job market recovered a healthy 21,500 jobs in October from the month prior. Job gains pushed the unemployment rate lower by 1.2 percentage points, from a revised 8.9 percent (initially reported as 9.0 percent) to 7.7 percent. This is in spite of a huge increase in the labor force, which welcomed back some 55,800 workers in October from September.

The topline numbers are encouraging, and last month’s jobs build shows that San Diego has recovered just more than half (52.4 percent) of the 223,700 payroll jobs lost between February and April as the COVID-19 outbreak forced state and county officials to shut down many sectors of the economy. That said, employment remains 7.0 percent lower than it was a year prior, and the jobless rate is still 4.5 percentage points higher than the 3.2 percent logged in February.

MOST INDUSTRIES CONTRIBUTE TO GAINS

Most industries reported job additions last month, with gains concentrated in business and professional services (+5,200 jobs) and construction (+4,100 jobs). Leisure and hospitality and retail, both of which were disproportionately hurt by COVID-related shutdowns, added back 3,200 and 2,100 jobs, respectively. Restaurants brought back 2,400 workers, making up the vast majority of gains in leisure and hospitality. Local government, which includes public school teachers and administrators, brought back 2,700 workers, while state agencies added 2,500 to payrolls last month.

Nonetheless, several sectors shed jobs, providing a partial offset to an otherwise upbeat employment report. Wholesalers let go of 1,200 workers, while federal government agencies, manufacturers, and other service providers laid off a combined 1,500 people.

The recovery across industries has been far from homogenous. Federal government agencies and builders have recovered all of their lost jobs, and then some. Other industries, like utilities and mining and logging, never lost jobs to begin with. Meanwhile, business and professional services are within striking distance of February’s pre-COVID employment peak. Still others, like wholesale trade and information, have only made a tiny dent in their respective jobs recoveries.

REGIONAL VIEW

Similar to industries, unemployment varies considerably across the county’s 25 cities. For instance, the jobless rate in Solana Beach stands at just 4.2 percent, whereas the rate is perched at a stubbornly high 14.3 percent in Bostonia. The rate for the City of San Diego was 7.4 percent last month, consistent with the 7.7 percent rate logged for the county.

BEHIND THE NUMBERS

At least several items stand out in the latest employment report.

October’s torrid labor force gains are both impressive and a relief. After an unsettling exodus of 45,100 workers in March and April, the civilian labor force hovered roughly 3 percent lower than its February peak in August and September.

Three percent may not sound like a lot on the surface, but it can have tangible impacts in a number of ways. First, a contracting labor force has the effect of lowering the unemployment rate. That’s because people are no longer counted as unemployed once they leave the labor force. This can have the secondary effect of making the jobs recovery seem stronger than it really is, which can distort business decisions. Second, research suggests that regional economies with smaller labor forces relative to the size of their populations tend to suffer more frequent and more severe downturns in the face of economic shocks. Finally, a shrinking labor force can raise labor costs—already the largest single expense item on most companies’ balance sheets—as firms are forced to compete for a smaller number of job applicants. So, last month’s bounce in the labor force, which easily more than undid the outflow of workers earlier in the pandemic, is a welcome sign, if sustained in coming months.

Another item bears interest, but is somewhat less sanguine. Activity has rebounded for San Diego’s hotels since the spring and summer, yet employment hasn’t followed suit. Both supply and demand for hotel rooms across the county have increased markedly from lows recorded in March and April, and average daily rates being charged for these rooms have climbed more than 50 percent during that time.

Still, accommodations employment is 38.5 percent lower than it was in February and 40.6 percent lower than it was in October 2019. It remains to be seen whether this reflects extra caution on the part of hotel owners, making sure that the risk of future shutdowns has dissipated before bringing workers back, or if it indicates a structural shift in the business model that has permanently reduced the need for employees.

WRAPPING IT UP

As mentioned, last month’s employment report is encouraging for a number of reasons. San Diego’s jobs recovery has thus far outpaced the rest of the state’s, including the broader Southern California region. However, San Diego’s recovery has lagged that of the nation.

Given the current dynamics, it would take San Diego slightly longer to recover all of the jobs lost from COVID than the U.S. as a whole. If the average pace of job growth from April through October were extended outward, the U.S. would recover all of its lost jobs by February 2021 versus April 2021 for San Diego. Of course, a number of factors could—and likely will—affect this relationship, including the emergence of an effective vaccine and an alarming number of new cases across a broader swath of the nation.

Regardless of the timing, San Diego’s job market continues to heal. Not only are the employment report details mostly encouraging, but efforts are underway to ensure that the recovery reaches a broader group of San Diegans. While the pain of the COVID downturn has been acute, there has arguably never been a better time to concentrate on rebuilding a stronger and more inclusive economy in the future.

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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San Diego’s Economic Pulse: October 2020

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

Key Takeaways

  1. Unemployment falls to 9.0 percent.
  1. Long-term unemployment continues to increase.
  1. Investments in workforce development and retraining become increasingly more important.

Labor Market Overview

The region’s unemployment rate was 9.0 percent in September down from a revised 9.5 percent in August 2020, and still three times above the year-ago estimate of 2.9 percent. Unemployment continues to increase in San Diego’s unincorporated and low income areas, while falling in wealthier areas. The highest unemployment area in the region was Bostonia at 16.5 percent and the lowest was Solana Beach at 5.0 percent.

The region’s unemployment rate remains lower than California’s unemployment rate of 10.8 percent, but higher than the national unemployment rate of 7.7 percent.

 

Looking at monthly employment, total nonfarm employment increased by 11,700 in September. Government accounted for the largest monthly gains, adding 6,800 jobs last month, primarily concentrated in local government education (up 5,300 jobs). Even so, compared to a year ago, local government education is still down 11,700 jobs. Leisure and hospitality followed with an increase of 2,500 jobs. Job gains were driven by accommodation and food services, which added 3,200 jobs. These gains were offset by a loss of 700 jobs in arts, entertainment, and recreation. Educational and health services increase this month, adding 2,400 jobs.

Compared to a year ago, San Diego nonfarm employment remains down 117,700 jobs, or 7.8 percent. Leisure and hospitality represents the largest share, down 52,400 jobs. Accommodation is down 14,000 jobs over the year, and bars and restaurants are down 24,400.

 

Long-Term Unemployment Continues to Increase

Long-term unemployment has increased substantially during the past few months of the pandemic, though it remains significantly lower than the peak experience in the Great Recession of 2007-2009. In September, the number of unemployed persons in the U.S. who were jobless for 27 weeks or more increased by 781,000 to 2.4 million. During the Great Recession, the highest rate of long-term unemployment was 6.8 million in April 2010.

Long-term joblessness can have a significant impact on workers’ future career prospects. If out of work long enough, skills become outdated. Moreover, long-term unemployed workers often face continual earnings losses, earnings volatility, and more frequent unemployment throughout their careers. Finally, long-term joblessness greatly increases the risk of workers leaving the workforce altogether, which can have lasting economic impacts.

Workforce development and retraining are becoming increasingly more important, especially as more workers face long-term unemployment. Jobs currently in high demand include software developers and software quality assurance analysts and testers, registered nurses, and retail salespersons and supervisors, which had the highest total job postings in September. While the hiring of retail might be a good sign, this may be due to the reopenings of stores and retail which will eventual level off. The top in-demand skills include merchandising, auditing, accounting, and selling techniques. Working to adjust these skills to the changing work environment is essential. Read more about workforce development and retraining, and how EDC is playing a part.

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: 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 Pulse: September 2020

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

Key Takeaways

  1. Unemployment drops sharply to 9.9 percent; remains highest in the unincorporated parts of the County.
  1. Employment up in nearly all industries, up 20,500 jobs month over month.
  1. Low-wage job losses are nearly 30 times greater than high-wage job losses.

Unemployment Drops

The region’s unemployment rate was 9.9 percent in August down from a revised 12.4 percent in July 2020, and far above the year-ago estimate of 3.4 percent. Unemployment declined monthly as the region continues to reopen and jobs recover. San Diego’s unemployment rate remains lower than the state unemployment rate of 11.6 percent, but higher than the national unemployment rate of 8.5 percent.

Unemployment was highest in the unincorporated areas of Bostonia (17.9%), Bonita (14.7%), Spring Valley (13.6%), and in the cities of National City (13.7%) and El Cajon (13.6%), and lowest in the cities of Solana Beach (5.5%), Poway (6.8%), Coronado (6.8%), Del Mar (7.3%), and Encinitas (7.3%). Wealthier areas are enjoying lower rates of unemployment, while neighborhoods with a larger share of lower-paid workers suffer from higher rates of unemployment – elaborated on below.

Employment Bounces Back

Total nonfarm employment increased in August, up 20,500 jobs. This follows similar patterns to the state and national data. In California, nonfarm employment increased by 140,400 in August from the month prior, while payroll employment increased by 1.4 million in the U.S. during the same time period.

However, compared to a year ago, San Diego nonfarm employment remains down 135,800 jobs or 9 percent. In California, total nonfarm employment is down 1.6 million jobs, or 8 percent compared to a year ago, while the U.S. is down nearly 13 million jobs, or 8.8 percent.

Sector Employment Gradually Returning

Government accounted for the largest monthly gains, adding 6,800 jobs in August, primarily concentrated in local government education (up 4,300 jobs) after last month’s large decline. Compared to a year ago, local government education is still down 11,400 jobs.

Professional and business services followed with an increase of 5,300 jobs. Most of those job gains were in the administration and support services sector, which added 3,100 jobs to the region.

Construction employment increased this month, adding 3,100 jobs.

Trade, transportation, and utilities employment increased this month, adding 2,600 jobs. This was driven primarily by retail, which added 2,300 jobs.

Leisure and hospitality employment as a whole declined by 400 jobs in August. Encouragingly, however, restaurants added 700 jobs last month amid measured reopenings across the region.

Recovery Must Focus on Low-Wage Workers

Despite the gains observed in August, industry employment remains well below levels a year ago. The largest decline in employment has been in leisure and hospitality, which is down 60,100 jobs (shown in the chart above), or 29 percent since August 2019. Most of those leisure and hospitality job losses are concentrated in accommodation and food services, with a loss of 43,900 jobs. Trade, transportation, and utilities are down 17,100 jobs, with 11,700 of those jobs in retail. Government is down 15,400 jobs annually, with 14,000 local government jobs lost.

The lowest wages in San Diego County are concentrated in the sectors hardest hit by COVID-19: accommodation and food services, retail trade, arts, entertainment, and recreation, and educational services. Average wages for accommodation and food services are $30,560, retail trade are $41,785, arts, entertainment, and recreation are $45,040, and educational services are $49,826. Each sector hit hardest by COVID19 falls below the median regional wage of $73,596.

Layoffs in low-wage sectors have occurred at a rate much higher than those in high-wage sectors. According to Opportunity Insights, low wage jobs are down 31.8 percent. Meanwhile, high wage jobs are down only 1.8 percent.

Consumer spending has also suffered as wages continue to drop, especially for lower-wage employees. While low-wage workers hold less spending power, they spend more of their paychecks directly, rather than investments or savings. We can expect to see a larger proportion of spending come back into the economy as lower-paid employees get their jobs back, and ultimately advance to better paying positions over time.

Every previous economic recovery has increased systemic poverty and widened inequality. Too often in a rush to restore normalcy, entire segments of our community have been left further behind. The stakes could not be higher that we get this recovery right. We must rebuild an economy that is more resilient than before, so prosperity reaches more people. Read more about EDC’s recovery framework.

 

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: Local housing market stays hot, unaffordable despite COVID

THE TAKEAWAYS…

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

HOUSING STILL ON A TEAR

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

WHY HOUSING HASN’T FALTERED

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

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

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

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

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

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

THE REPERCUSSIONS

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

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

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

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

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

Request EDC assistance

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