Northern California:

Economy One Step Ahead, but Should Focus on Pre-COVID Efforts

Northern California’s continuing economic recovery in 2021 is highly dependent on past years’ wildfire rebuilding efforts that were in play before COVID-19 arrived, as well as fostering a more skilled local workforce and getting the spread of the pandemic under control.

That’s according to the most recent forecast and trends presented by Cal State Chico. These experts’ opinions spotlight intriguing viewpoints and projections so your credit union can plan appropriately.

Cal State Chico
Presented on Jan. 14 by the North State Planning and Development Collective during its 21st Annual Economic Forecast Conference:

Similar to the rest of the state, Northern California’s economy and job market probably won’t see a complete “return to normal” until late 2023 or early 2024 at the earliest. Various economic forecasts have the entire state of California’s gross domestic product (GDP) hitting 3.5 – 5 percent in 2021 and unemployment hovering in the 6-percent range as individuals rejoin the labor force (pool of people who are willing and able to work). These projections have positive implications for the counties of Colusa, Butte, Glenn, Tehama, Shasta, and Sutter. Locally, early 2021 will feel like an economy in transition instead of one in crisis, and by late 2021 the economy’s recovery will be on much better footing than it experienced throughout 2020 (assuming the spread of COVID-19 is under more control than today).

On the surface, Northern California’s economy has already recovered quicker than other regions across the state having much higher concentrations of jobs in leisure, hospitality, tourism, and entertainment. The fact that these industries only make up so much of Northern California’s economy is assisting the region compared to other areas in the state that have higher concentrations of businesses in these sectors and have been drastically impacted by the COVID-19 recession and slow recovery thereafter due to tight business restrictions and other factors. However, it doesn’t necessarily mean Northern California is recovering any faster when truly compared to other areas — it just means the economic hole during the 2020 pandemic recession didn’t crater-in as deep locally.

Long-term residential and commercial rebuilding efforts coming out of past years’ wildfire damage is integral to Northern California’s economic recovery in 2021. As the region continues emerging from 2020’s pandemic recession, economic “drivers” such as rebuilding (already in place before the COVID-19 economic slowdown) are even more important to creating a sustained local recovery. For instance, annual homebuilding permits in Butte County were at a low of 200 in 2010 and 2011 before steadily rising over the next eight years to 940 per year by 2019 (buffered by wildfire rebuilding). Then, 2020’s pandemic recession forced annual builds downward to 376 in the county — a major blow. The hope is that local residential building will pop back up noticeably in 2021. (For context, Butte County’s home builds hit a medium-term peak of 1,500 to 1,600 annually from 2003 – 2005 before starting to fall.) The county can be an interesting barometer of local construction across the entire Northern California region.

A review of Northern California’s job losses (and eventual slow recovery) in 2020 shows the region is nearly in-line with California’s recovery as a whole. California’s job market is under-pacing the recoveries of many other states in the nation for a variety of reasons, but underneath the surface specific regions are suffering even worse within California than others across the state (areas with a high concentration of leisure/hospitality businesses and jobs — such as Orange County). In Butte, Tehama and Shasta counties from November 2019 to November 2020, total non-farm jobs were still down -6 to -11 percent depending on the county. Every local industry was negatively impacted by 2020’s pandemic recession but experienced the slowdown a little differently from each other. However, for all three counties combined, the least affected industries were transportation/warehousing/utilities, construction, and educational/health services. The most negatively impacted industries were leisure/hospitality, “other” services, professional/business services, wholesale trade, and information technology. Those in the middle are manufacturing, retail trade, financial activities, and local government.

Various Northern California industries that were victim to negative hits from last year’s pandemic recession fared differently due to their locality, business dynamics, and other factors from November 2019 to November 2020. Shasta County was the most negatively impacted in leisure/hospitality and "other" services (but held up relatively well in transportation/warehousing/utilities, information technology, and educational/health services). Tehama County was most negatively impacted in leisure/hospitality, professional/business services, and information technology (but held up relatively well in local government and educational/health services). And Butte County was most negatively impacted in leisure/hospitality, wholesale trade, and professional/business services (but held up relatively well in manufacturing, retail trade, financial activities, and "other" services). Going forward, nearly all job categories are recovering, but at different paces.

Proportionally speaking, continued job losses in the greater Sacramento and San Francisco regions remained double or triple that of Northern California going into late 2020 — and these areas remain a drag going into 2021. Continued unemployment insurance claims tracked through the state for these areas shows that Butte, Shasta, Glenn and Tehama counties peaked at an unemployment-claim measurement index of between “230” to “430” in April to May of 2020 after the pandemic recession took its major toll on the economy (this index is an apples-to-apples comparison). Meanwhile, the Sacramento region reached “900” on the continued unemployment claims index, and the San Francisco region hit “1,400” (all three mega regions started together at approximately 90 back in January 2020). While the index has dropped for all areas, it remains stubbornly high for Sacramento and San Francisco. This visual reveals the much smaller economic and labor market hole that Northern California fell into (and thus has to climb out of) versus a much larger hole in other regions due to a variety of factors, including variations of local government lockdowns, business restrictions, and higher concentration of leisure/hospitality industries.

Butte County’s “K-shaped” jobs recovery since the 2020 pandemic recession gives a good visual of the labor market dynamics impacting all of Northern California (and the entire state). When the recession hit the local economy in March – April of 2020, employment growth for high-wage workers in Butte County ($60,000/year and more) briefly dropped by -5 percent before rising into positive territory within a couple months and remaining there since then (thus following its pre-pandemic trajectory) — and about 5.4 percent higher than when the pandemic arrived. Job growth for middle-wage workers ($27,000 – $60,000/year) initially fell by -15 percent before recovering to -6.5 percent by autumn 2020; and for low-wage workers (below $27,000/year), employment growth plunged by -43 percent before recovering to -38 percent by autumn 2020.

The local “K-shaped” jobs recovery example above also aligns with small business activity (or lack thereof) for Butte, Tehama, and Shasta counties from March 2020 – January 2021. The percentage of small businesses “open for business” dropped by -45 percent in all three counties in March to April of 2020. Since then, small businesses in Butte and Tehama counties have barely recovered to -40 percent as of January 2021, but in Shasta County it remains worse off (at -49 percent). The positive impact of the first round of congressional/federal business relief payments via the Paycheck Protection Program (PPP) had small business activity in all counties tick-up briefly from May to June 2020 before falling again going into late summer (combined with various local/state fluctuations of business restrictions).

Median home prices are expected to rise significantly in nearly all Northern California counties from October 2020 to October 2021. Historically low mortgage rates continue fueling price growth, and the 2020 pandemic recession and job market slowdown’s impact on households continues affecting renters much more than homeowners who want to sell and trade-up locally and/or migrate out-of-region or state. Depending on the Northern California county, 2021’s median price growth could range from 7 to 10 percent as low housing stock inventory also plays a role in the continued momentum. For context, median prices grew in the following counties from late 2018 to late 2020 (a 24-month period): Colusa County (6 percent); Glenn County (7.5 percent); Tehama County (14 percent); Shasta County (14 percent); Butte County (17 percent); and Sacramento County (14 percent).

Northern California’s demographic make-up will be interesting to watch in the coming years as an increase in younger students provides future fodder for workers entering the local labor market. Kindergarten-through-12th grade attendance at local schools is forecasted to continue increasing in Butte County and Shasta County (and to some extent Glenn County) from 2021 to 2029, but on average the same younger in-school demographic will decline significantly across the entire state of California. A younger workforce coming into the local Northern California labor market in the future is a positive boon to any area. Will Northern California leaders do everything in their power to get local kids back onsite in classrooms and college students back on campuses throughout 2021? This current issue, affected by the pandemic and restrictions, will have educational and economic implications in the future as students are affected by their learning environments.

Four questions for local leaders to ask as Northern California’s economy continues recovering in step with the entire state in 2021: 1) Where should local government put its resources and energies in helping businesses stay afloat and recover in-line with the economy? 2) How long of a shadow might local job losses cast on the economy and in what specific industries? 3) When will local government not be able to shoulder the negative impact from the 2020 pandemic recession, and how will short-term versus long-term tax revenues be affected? 4) How did housing affordability for local workers play a role in the economy’s outlook before the 2020 pandemic recession, and what is its role going forward due to the pandemic recession’s lasting impact?

You can read more here: For "Retail Stores, Restaurants Not on Economic ‘Endangered List,’ North State Expert Says,” click here to view this local article (Record Searchlight).

For the keynote economist’s presentation: you can view the “Economy in 2021: North State Planning and Development Collective” slide show.

Caltrans’ County-Level Economic Forecast
Released in December 2020 by Caltrans (the California Department of Transportation):

You can view Caltrans’ economic, demographic, housing, population, job, inflation, and industry breakdown forecasts for each county. Click on the following to view local trends and projections from 2021 – 2025: Colusa, Butte, Glenn, Tehama, Shasta, and Sutter. Or you can click here to view any county in California.

Northern California Small Business Activity
Updated routinely by Homebase, a provider of real-time digital tools for small businesses:

Small business activity across the greater Sacramento region was down at varying amounts compared to pre-COVID levels as of early December of 2020. Activity was down -22 to -27 percent depending on the measurement analyzed. In contrast, the region was down between -58 to -76 percent in April 2020 before starting to recover. Measurements include the volume of hours worked by employees, the number of businesses open, and the number of employees actually working. You can click here to learn more and pick your region.

Northern California: Demographics, Labor, Education & Economic Resources

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