Presented by Meyers Nave, this edition of San Diego’s Data Bites covers September 2021, with data on employment and more insights about the region’s economy at this moment in time. Check out EDC’s Research Bureau for even more data and stats about San Diego.
- San Diego establishments added a meager 3,600 payroll positions between August and September, all of which came from the public sector as teachers and school staff were brought back on.
- The unemployment rate tumbled to 5.6 percent in September from August’s 6.6 percent. However, the improvement is out of step with the payroll job counts and may not withstand data revisions.
- Inflation in San Diego has been running even hotter than the national average in recent months. However, fundamentals suggest price pressures will ease by next Spring.
San Diego establishments added a meager 3,600 payroll positions between August and September, all of which came from the public sector as teachers and school staff were brought back on. A build of 9,500 government positions was partially offset by the loss of 5,900 private-sector jobs. Losses in Other Services—which include gyms and salons—gave up 1,800 positions, followed by a loss of 1,500 in Leisure and Hospitality, potentially spotlighting the impacts of the Delta and Mu COVID-19 variants on the job market.
The separate household survey, which is used to calculate the unemployment rate, relayed a different story. The jobless rate dropped a full percentage point from 6.6 percent in August to a post-pandemic low of 5.6 percent last month. That said, the improvement is out of step with the payroll job counts and relies on a much smaller sample size. As such, last month’s decline in unemployment may not withstand revisions and future reports may indicate a higher jobless rate in the region.
Inflation concerns are overinflated
The economy has been dealing with an issue that it hasn’t had to in quite some time: inflation. The U.S. Bureau of Labor Statistics (BLS) recently reported that the widely watched consumer price index (CPI) increased 5.4 percent from September 2020 to September 2021, the fastest year-over-year rise since July 2007 to 2008. Closer to home, consumer prices in San Diego County rose an even brisker 6.5 percent during that time, the second highest rate of inflation among a group of 12 major metro areas reported for September.
The recent spate of inflation has put some economists and pundits on edge, but there’s reason to believe that price pressures will begin to ease as we close out 2021 and head into the New Year. Households accumulated record savings in 2020 as stay-at-home orders limited spending, and consumers have spent those savings with gusto over the past year. Simultaneously, global production of many goods and services all but ceased as consumer spending ground to a halt. The result has been a tsunami of cash being spent on a much smaller supply of goods and services, which is pushing prices higher. But these dynamics are normalizing, and inflation is unlikely to run persistently hot for too much longer.
To start, the personal saving rate declined to 9.4 percent in August 2021 from a record-smashing 33.8 percent in April 2020 and another spike to 26.6 percent in March 2021. This means consumers are spending through their saved-up cash and that the recent wave of above-trend consumer spending growth should settle back into its groove, helping to alleviate recent price pressures.
At the same time, imports are quickly climbing back to trend as the global economy sputters back to life. This is crucial, because the shift to production by emerging market economies, particularly China, has been the key reason inflation has been as tame as it has for the past several decades. Imports of goods from China to the U.S. more than quintupled from 1999 to 2020, accounting for about a quarter of the total growth in goods imports to the U.S. from around the world. This coincided with essentially no price increases for durable-goods items such as appliances, which are by and large made in China, over that time period. In fact, Americans are only paying 6.3 percent more for durable goods than they were in 1990 whereas we are paying 98 percent more for nondurable items and 154 percent more for services. It’s only a matter of time before that productive capacity is up and running again, which will also serve to tame inflation.
Housing and energy costs are also driving inflation, but not for much longer.
As of August, San Diego house prices were up 26 percent from a year ago, but this is due in large part to two phenomena: (1) lower mortgage rates and (2) people taking advantage of lower house prices in East County. Mortgage rates are responsible for 70 percent of San Diego house price fluctuations, about double the national average. A brief rise in borrowing costs paused the climb in home values in the late spring, but it will take a more convincing rise in rates to bring property values back to earth. This should begin in early 2022 after the Federal Reserve starts to normalize monetary policy.
The bulk of the countywide increase in house prices has also been due to rising demand in East County as remote workers sought out cheaper digs farther away from the office. While homebuyers may continue to find deals in less coastal areas, rising mortgage rates should quell demand for homes in all parts of San Diego County over the next six months to a year.
Finally, energy costs. Similar to industrial production in China, OPEC and other petroleum-producing nations essentially closed the spigots last year as shuttered businesses and offices used less electricity and people put off traveling. A 28 percent reduction in energy consumption between January and April 2020 combined with a delayed supply reduction forced a 71 percent drop in West Texas Intermediate (WTI) crude oil prices during that time. While energy prices have recovered and then some, the U.S. Energy Information Administration (EIA) projects that a recent surge in production should bring energy prices back down again in coming months.
With the key causes of inflation identified and their antidotes set to be implemented over the next few months, inflation concerns are overinflated. While the erosion of consumer purchasing power during a recovery is less than ideal, rising prices will induce an acceleration in production as producers seek out profit opportunities amid the higher-price environment. The increase in global supplies for everything from clothing to microchips will help to lower prices again, and a resumption of trend consumer spending growth will also slow price increases. Patience can be a lot to ask after a year-and-a-half of uncertainty, but the reality is that a combination of policy normalization and market dynamics will put a lid back on inflation by next Spring.