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

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

10 YEARS OF JOB GROWTH LIKELY UNDONE IN 10 WEEKS

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

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

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

LIGHT AT THE END OF THE TUNNEL

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

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

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

COVID-19 RECOVERY RESOURCES

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

Request EDC assistance

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

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San Diego’s Economic Pulse: May 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 April 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.

Unemployment Skyrockets

The region’s unemployment rate was 15.0 percent in April, up from a revised 4.2 percent in March 2020, and above the year-ago estimate of 2.9 percent. During the 2009 recession, unemployment peaked at 11.1 percent in January 2010 and again in July 2010. The region’s unemployment rate remains lower than the state unemployment rate of 16.1 percent, but higher than the national unemployment rate of 14.4 percent during the same time period, respectively.

Employment Declines More than the Great Recession

Between March 2020 and April 2020, total nonfarm employment in San Diego decreased from 1,494,000 to 1,299,400, a loss of 195,000 jobs. For context, during the 2009 recession, the largest monthly non-seasonal job loss in San Diego was between June 2009 and July 2009, with 22,900 jobs lost, and the local economy lost a total of 119,000 jobs from Dec 2007 to Jan 2010. Put differently, more than 25 months of job losses occurred in San Diego in April alone because of COVID19. The month-over-month job losses are consistent with record-breaking state and national trends. In California, nonfarm employment decreased by 2.3 million in April from the month prior, and payroll employment declined by 20.5 million in the U.S. during the same time period.

According to the Bureau of Labor Statistics’ Current Population Survey, over 78 percent of all unemployed Americans in April reported being “on temporary layoff.” On the surface, this could mean that a sizable portion of those laid off will be able to get back to work in relatively short order. However, with many retail and food service businesses reopening at only partial capacity, the return to work may be longer than expected, and some who reported being on temporary layoff may ultimately be laid off permanently.

Compared to a year ago, San Diego nonfarm employment contracted by 199,200 jobs or 13.3 percent. In California, total nonfarm employment decreased by 2.3 million jobs, or 13.4 percent, from April 2019 to April 2020 compared to the U.S. annual loss of 19.4 million jobs, or 12.9 percent.

Sector Employment Suffers

Every one of San Diego’s 11 industry sectors lost jobs in April. Leisure and hospitality accounted for the lion’s share, shedding 96,200 payroll positions, or nearly 50 percent of its workforce. Within the leisure and hospitality sector, accommodation and food services lost 80,700 jobs, or 49 percent. California similarly saw widespread layoffs. Similar to San Diego, in California, leisure and hospitality posted the largest contraction at 866,200, which was more than double that of trade, transportation, and utilities, which gave up 388,700 payroll positions. This was also true nationally: job losses were spread across every industry, but cuts were especially severe in leisure & hospitality, which gave up some 7.7 million positions.

Retailers reduced employment by 20,300, or 14.3 percent in April, with the largest employment decreases in clothing and department stores. SANDAG estimates a potential loss of taxable retail sales of 53 percent in May, assuming a 3-month disruption from COVID19. This implies more retail job cuts could be on the way in the May employment report.

Understanding the ongoing economic damage caused by COVID19 can be daunting, as the numbers involved are often so far out of scale with the rest of historical data that it is difficult to even contextualize what they mean. Overall, COVID19 has accelerated unemployment and job losses at a level unheard of.

San Diego’s Economic Pulse: April 2020

Each month the California Employment Development Department (EDD) releases employment data for the prior month. This analysis covers March 2020 and reflects some—but not all—of the early effects of the coronavirus pandemic on the labor market. The San Diego jobs report estimates conditions in the job market as of the week of March 12. However, many of the actions taken to slow the spread of the coronavirus took place during the second half of the month, so the full extent of the impacts to the labor market are not apparent in the most recent report.

EDC’s COVID-19 Business Survey Analysis shows that the impacts of the COVID-19 outbreak on San Diego’s economy are severe, concentrated, and disproportionally affect small businesses and low wage workers. These results are corroborated by skyrocketing initial claims for unemployment insurance, both nationally and in California. While this is not fully reflected in the March employment data, it implies a dismal April jobs report should be expected along with downward revisions to the advance March estimates.

A Developing Picture

The region’s unemployment rate was 4.1 percent in March 2020, up from a revised 3.2 percent in February 2020, and above the year-ago estimate of 3.5 percent. The region’s unemployment rate remains lower than both the state and national unemployment rates of 5.6 percent and 4.4 percent, respectively. According to EDC’s survey of businesses, 75 percent of San Diego businesses plan to furlough employees, lay off employees, temporarily shut down operations, or permanently close. As firms decrease their workforce, unemployment insurance claims have spiked to historically unprecedented levels.

Between February 2020 and March 2020, total nonfarm employment in San Diego decreased from 1,514,500 to 1,504,400, a loss of 10,100 jobs. The month-over-month job losses are consistent with state and national trends. In California, nonfarm employment decreased by 252,000 from 19,516,000 to 19,264,000 in March from the month prior, and payroll employment declined by 701,000 in the US during the same time period. While the numbers have been eye-opening, it is likely that the data will continue to deteriorate substantially in the April and May job reports before any turnaround takes hold.

Initial claims for unemployment insurance have skyrocketed across the US in recent weeks. New filings for unemployment in California topped a million for the week ending March 28, eclipsing the previous record of 115,000 claims before the COVID-19 outbreak. Initial claims “eased” somewhat to 918,000 in the week ending April 4 and to 661,000 for the week of April 11. According to EDC’s survey of businesses, 388 employers plan to eliminate 14,844 jobs; nearly 69 percent of their workforce. Nearly all expect those reductions to happen immediately or within the next 30 days.

Compared to a year ago, San Diego added 13,000 new payroll jobs or 0.9 percent. Year-over-year employment gains in San Diego are consistent with, both, the state and national employment growth rates of 0.9 percent and one percent, respectively.

Unexpected Immediate Impacts

Surprisingly, professional and business services and construction accounted for the bulk of job losses, shedding 3,700 and 3,400 payroll positions respectively. Similar to the national trend, government led all industry sectors in month-over-month San Diego job gains, adding 1,200.

The industries in San Diego most vulnerable to the effects of policies aimed at containing the spread of the virus include arts, entertainment, and recreation, accommodation and food services, wholesale trade, and retail. Together, these industries accounted for about one in four local jobs and $18.5 billion in salaries and wages in 2019. Given the deep roots of those industries in the local economy, the ripple effects of job losses are expected to be significant: for every 1,000 jobs lost in retail, wholesale, the arts, or food services, an estimated 500 jobs would be lost in other industries across San Diego.

Between February 2020 and March 2020, employment in these most vulnerable industries dropped by 600, or 0.2 percent. While wholesale trade, retail trade, and accommodation and food services recorded job losses, the arts, entertainment, and recreation industry reported a small gain of 100. Job cuts in these industries were concentrated in wholesale trade, which let go 1,100, or 2.3 percent, of its workers.

These reductions (0.2 percent) are less severe than both the state and national employment declines of 1.6 percent and 1.3 (0.7 unadjusted) percent, suggesting the full scale of the impacts is yet to be captured by the data. Looking at food services, for example, if San Diego experienced the same monthly decline in sales as the US (26.5 percent), we should have seen sales drop by approximately $32 million and more than 3,200 jobs lost in those industries alone. Our survey of San Diego businesses shows they anticipate even larger revenue declines than what is contained in the US retail sales report. The bottom line is that the full extent of the damage incurred by the local job market is unlikely to be revealed for at least several months.

Please remember that EDC is here to help during these extraordinarily difficult times and that we are all stronger together. For general COVID-19 recovery resources and information, please view this page.

COVID-19 Survey Results: Immediate impacts are concentrated, severe, and hit small business & low wage workers hardest

More than 86% of businesses in San Diego expect to see revenue losses in the wake of COVID-19, according to an economic impact survey on the San Diego economy.

In order to assess immediate economic impacts and understand the evolving business sentiment, we have deployed a survey with our partners at San Diego Regional Chamber of Commerce and Imperial Small Business Development Center. The Downtown San Diego Partnership and National City Chamber of Commerce also served as survey partners. The survey will remain open for the foreseeable future so we can chart how responses change over time.

Key Takeaways

Three trends stood out based on what employers told us during the first two weeks of surveying:

  1. Impacts are concentrated by industry. Of the 360 employers planning to reduce staff, 80% are in the food and beverage or tourism industries.
  1. Impacts are immediate. Nearly 94% of employers anticipating staffing reductions and two-thirds of those expecting revenue declines expect those hits within 30 days.
  1. Impacts disproportionately affect small businesses. Employers with annual revenues below $1M anticipate average losses in income of nearly 70%, compared with an average loss of 51% for businesses earning more than $1M annually.

A majority of employers (61%) are in need of capital support. More than half of those with capital needs are the smallest of employers with fewer than 5 employees.

AN Interactive Visualization

Below is an interactive visualization of self-reported impacts to local employers, both in terms of employment and revenue. You can segment the data by industry, number of employees, and typical annual revenue

Small businesses are the backbone of our local economy and the majority of the Chamber’s membership. They account for 98 percent of businesses in the region. Our focus now more than ever is on those small businesses. We are working with local and federal officials to ensure our region’s businesses have what they need to weather this storm. We are focused on resiliency and recovery.

Jerry Sanders, president & CEO, San Diego Regional Chamber of Commerce

Respondent Profile

For up-to-date respondent information on the survey respondents and high level results, please view the responding profile here.
Other key numbers:

  • Number of responses: 642
  • Number of responses in this analysis: 642

While the impacts of COVID-19 are rippling through the entire region, the survey shows that small businesses – which are responsible for a majority of our economic growth – are disproportionately impacted. It’s a long road to recovery, and I want to remind you that EDC’s staff is here to help you access loans and grants, and work one-on-one to triage issues as they arise.

Mark Cafferty, president & CEO, San Diego Regional EDC

Resources for you

San Diego Regional EDC, San Diego Regional Chamber of Commerce, and San Diego and Imperial SBDC offer a variety of resources to help businesses.

If you would like assistance from EDC, please use this form. Once we receive your responses, we will make every effort to reach out to you within 24 hours.

Request EDC assistance

If you are looking for general information about COVID-19, please view this page.

All of us at the San Diego & Imperial SBDC Network know this public health crisis is hitting you, the small business owner, very hard. Know we are here to help. We are still providing all our services, just online. You can still visit SDIVSBDC.org and click “request counseling” to get assistance. We are here to help you apply for capital and work through the ways you now have to pivot to get through this time where we all have to be physically distant from one another.

Danny Fitzgerald, San Diego and Imperial Small Business Development Center

 

*industries include retail trade (excluding groceries and gas stations), wholesale trade, arts & entertainment, accommodation & food services.