California:

Economy to Play Major Catch-Up: Fully Back on Track by Late 2022

As California’s economy and jobs market continue playing catch-up to stronger growth in other states, experts hope “sidelined” individuals will re-enter the labor force (pool of adults willing and able to work) at higher, quicker monthly rates from 2021 – 2022. Such a trend would help boost economic and labor growth even that much more.

That’s according to the most recent forecasts and trends presented by experts from UCLA, California Economic Forecast consulting firm, Beacon Economics consulting firm, and others. These experts’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

UCLA
Presented on March 10 by the UCLA Anderson Forecast (“March 2021 Economic Outlook: Emergent Trends Post-COVID”):

California’s total non-farm employment (company/organization payroll jobs plus independent/contractor jobs) will recover to its early 2020 level of 18.7 million positions by mid-2022 and climb to a record 19.1 billion by late 2022. This will still fall below the total-jobs trajectory the state was on before the COVID-19 pandemic recession hit the economy in March – April of 2020. However, the economy never hits its forecasted trajectory over the long-term as recessions have been inevitable every 5 – 10 years since the 1940s and filter-out individuals in the labor market who may decide to leave the labor force (retire or exit) during a recession or afterward. Under the surface of that headline total-employment figure, company/organization payroll jobs will reach a record 18 million. Yet while California's services employment sector will surpass its last record reached in early 2020 by late 2022, the goods-producing sector will plateau at its early-2020 peak and remain there.

California’s unemployment rate will fall to its pre-pandemic level of 3.9 percent by late 2022 or early 2023 (after spiking at 16 percent in spring of 2020). The state’s current unemployment rate is 9 percent (the proportion of individuals in the state’s labor force — the pool of candidates willing and able to work — who want a job but don’t have one). A noticeable number of individuals across the state have dropped out of the labor force during the past 12 months, meaning they no longer want a job until they maybe (someday) change their minds. This means the state’s unemployment rate will continue falling at a slow/steady pace (versus faster) since workers tend to re-enter the labor force in higher amounts when plenty of job openings come back into the economy. This declining unemployment rate will come on the heels of “real” (adjusted for inflation) U.S. gross domestic product (GDP) rising 6.3 percent in 2021, 4.6 percent in 2022, and 2.7 percent in 2023 (after declining -3.5 percent in 2020). The next few years will experience quite a boom as the economy plays catch-up for its loss in 2020 (just like any recovery from any recession in the past)

However, job openings across California remain pretty high currently, which has implications. It means the real draw to come back into the labor force (pool of candidates who are able and willing to work) by these “sidelined” individuals will probably happen under a confluence of future factors: schools reopen for children and teens, more businesses reopen, extended and emergency unemployment insurance benefits run out, and congressional “stimulus”/relief monies eventually end. Total payroll employment growth will be 5.6 percent in 2021, 3.1 percent in 2022, and 2.2 percent in 2023 as the growing economy eventually gives way to a much lower unemployment rate by that last year (and it’s harder for businesses and firms to find workers to fill job positions — a phenomenon not seen since 2018 and 2019).

California’s annualized residential homebuilding permits will continue rising and remain a bright spot for the state’s economy and construction labor market. They will increase from approximately 100,000 in 2020 to 127,000 in 2021, then 130,000 in 2022, and then 134,000 in 2023. This measurement includes both single-family and multi-family home builds, which have been rising steadily from about 45,000 annually in 2011 after the Great Recession to where it landed by 2020. “However, this level of homebuilding is low enough that the prospect of the private sector building its way out of the housing affordability problem over the next three years is nil,” the forecast report states.

In recent years, multi-family building permits have usually made up about 55 percent of all California permits while single-family permits are 45 percent — a trend not expected to change too much. Total construction jobs throughout the state (residential and commercial workers combined) plateaued around 880,000 from 2018 – 2020 but are ramping back up coming out of the COVID-19 crisis point (spring of 2020) and will reach a record 925,000 by late 2022. In tandem, by late 2022 the dollar value of commercial building permits won’t fully recover but will at least reach a level not seen since 2017.

California’s job losses during 2020’s COVID-19 recession and subsequent employment growth during much of the economic recovery has continually under-paced the entire nation — until probably right now. Currently, the state’s jobs recovery is most likely outpacing the United States (beginning in January/February 2021) for about six months, and it won’t be under the middle of this year that total non-farm employment in the United States (company/organization payroll jobs plus independent/contractor jobs) will start outpacing California again. That’s because of California’s above-average concentration in leisure/hospitality, accommodation, entertainment, and lodging/hotel jobs, where the state’s economic sinkhole was deeper than the nation as a whole, on average, during the recession and subsequent recovery that took off in stubborn fits and starts (due to state/local business restrictions, health policies, and other factors).

Although California’s job-growth “bounce back” will remain higher than the nation’s recovery for the next six months, the state has a larger proportion of workers who have exited the labor force. This took place over the past 12 months (these are the pool of candidates willing and able to work), which means its unemployment rate will be continually elevated above the nation over the next two years as it tries absorbing an above-average number of individuals re-entering the labor force locally.

Depending on the industry in California, payroll employment going into late 2022 will grow and/or recover to varying levels. By late 2020 the following industries will hit new records in total employment: construction, education and health services, information technology, financial activities, and professional and business services. The following will recover to their pre-pandemic levels: state/local government (combined category) and federal government. Manufacturing will noticeably recover but not fully, and trade will actually be the one category declining significantly lower over time.

Overall, California’s leisure and hospitality industry will be the last to recover because of the depth of the decline in this sector and its reliance on international tourism. Individual job-market recoveries in the business, scientific and technical services sector, as well as the information sector (due to demand for new technologies that support how we are working and socializing), will come much faster, assuming they haven’t already.

California’s change in annualized total “real” personal income (adjusted for inflation) surged during 2020 but is already on its way lower. Before the COVID-19 pandemic caused Congress to support the economy through fiscal stimulus and additional unemployment relief, this annualized measurement was about 1.5 percent in the state from 2017 – 2019. It jumped to 4 percent during 2020 but will decline to -2 percent in 2021 as the economy (and congressional fiscal aid) normalizes — before jumping back to 3 percent in 2022. By that year, the economy will be building off many months of job gains and unemployment will finally start entering pre-pandemic territory from early 2020.

Annual sales tax revenue in California has already recovered from the COVID-19 recession during last year and is on track to hitting new records over the next two years. This measurement hit a record high in 2019 before dropping in early 2020 (only to briefly plunge during the crisis point of the pandemic in springtime/summer of 2020). Revenue was severely down during 2020 due to the depressed services sector (unlike the goods sector). This is due to a -7 percent decline in taxable sales. However, taxable sales (which revenue is based off) is expected to shoot up around 5 percent in 2021 before settling back down into a more normal range in 2022.

Annualized new-vehicle sales in California won’t fully recover over the next two years — however, although they’ve plateaued, this measurement most likely won’t decline. Coming off the record highs of 2016 (approximately 2 million new-car/truck sales), 2019 saw about 1.7 million sales before plunging during spring of 2020 amid the COVID-19 recession. While 2020 reaped only 1.3 million sales, both 2021 and 2022 will probably see approximately 1.5 million sales each of those years.

The recent out-migration of residents from the Bay Area to other regions in California or out of the state “does not show unequivocal evidence of a mass exodus,” the forecast report states. “On the contrary, the data is consistent with a pandemic recession. Nevertheless, remote work and the experience of living elsewhere might, in fact, have an important impact on the growth and character of Silicon Valley and the entire Bay Area in the coming years.”

Since 2000, California’s health care industry has grown more than the state’s overall economy. “New types of firms continue to enter the health care market. After the 2007–09 recession, there was an increase in the number of firms at the intersection of health care and tech,” the forecast report states. “Although that trend has abated somewhat, IPO activity in this area was strong in 2020. Types of care have evolved as well. As an example, the skilled nursing sector has been shrinking while the home care and tele-health sectors have grown. There has also been a trend toward consolidation in the health care sector as a result of integration and mergers.”

Regarding this changing health care scene in California’s economy: “The 2020 pandemic and recession sowed the seeds of change in some areas, but change does not happen overnight. The influence of the government through Medicare and Medicaid provides stability and tempers radical deviations from past patterns,” the forecast report states. “Demographics are also creating predictable trends: The population is aging and will need more health care as a result. These two forces will likely have a strong influence on long-term change in the industry, which is generally on an employment growth trend and is unlikely to experience sharp deviations from that trend in the near term.”

You can view the archived presentation. Make sure to click here and watch the entire video.

California Economic Forecast (consulting firm)
Released on March 19 by the California Economic Forecast consulting firm (“Moving Into the Red Tier, and Another Surge?”):

As restrictions are eased in California this year, more travel will be unleashed and visitors should inundate all regions of the state. The demand for amusement parks, festivals, fairs, parades, and large events will be prolific as Californians desperately seek a return to normal fun activity. There will be major improvements, although California will remain limited for much of 2021 compared to many other states. “Unless the office of the governor changes course, the ‘Blueprint for a Safe Economy’ will continue to limit the restoration of business in county economies throughout the state,” states the forecast report. “If mask and distancing mandates are going to be required even after all adult Californians receive the vaccine, business restrictions will also be required, at least in terms of capacities. This takes us through the summer months and into the fourth quarter. Without a fully open and functioning economy, California faces limits on growth, including hiring. A swell of spending activity by consumers restrained for well over a year cannot fully occur. Therefore, the larger spending and jobs surge in California is unlikely until 2022 when we presume all restrictions (both public and private) will have been lifted.”

While easing economic restrictions are occurring throughout the nation, it’s happening at a snail’s pace in California (where most economic activity in the state is still subject to some form of limitation). Restaurant customers are limited, as are retail store and personal service customers. Office workers are largely remote, and schools are either not open or operating on a hybrid schedule. Sporting events are capacity-regulated, as are business meetings. Large events are prohibited. “New, more infectious variants of the COVID-19 virus are racing against the vaccines, the latter of which is winning so far in California,” the forecast report states. “The ultimate victor will influence the implementation of restrictions on various types of business activity.”

In California, the extent of the recovery within the public’s perception of economic conditions will remain limited until the labor market improves and the number of reported COVID-19 cases falls significantly, enabling the removal of restrictions and restoring the ability to move freely. “This has largely occurred in many other states but not in California,” the forecast report states. “An unrestricted economy would likely result in a surge of growth, led by consumer spending, job and income creation, business travel, leisure travel and tourism, and strong demand for public gathering events such as concerts, conferences and sporting events. Consequently, with the clear abatement of the pandemic, we expect a sharp rebound in the economy, though a return to the normal we knew in 2019 will be delayed until mid-2022 or early 2023.”

Beacon Economics (consulting firm)
Released on March 10 by Beacon Economics consulting firm (“Pandemic-Besieged Small Businesses Struggle to Reopen Across all Major Metros in California, but Vaccine Rollout Brightens Outlook”):

The annual benchmark revision released March 12 by the California Employment Development Department (EDD) saw 2020’s employment figures revised downwards significantly. Employment growth in the state from December 2019 to December 2020 was revised down from -8.0 percent to -9.2 percent. This translates into an additional -206,500 jobs lost in California during those 12 months than the EDD originally estimated.

Typically, annual revisions show greater California job losses than were initially reported during recession periods, so this downward adjustment was somewhat expected. At the same time, the revised figures show the true magnitude of the hole that the pandemic and its effects left in the state’s labor market. The labor market fallout in 2020 was significantly worse in California than originally estimated.

Compared to December 2019, there were 1.6 million fewer jobs in California’s economy by December 2020 (compared to the EDD’s original estimate of 1.4 million fewer jobs). Likewise, the drop in the state’s labor force (pool of candidates willing and able to work) was revised downwards. During the year, 731,300 workers left the labor force compared to the 523,000 contraction originally estimated. This translates into a labor force drop of -3.8 percent compared to the original estimate of -2.7 percent. Although a modest economic recovery already underway is gaining even faster traction in spring of 2021, the extent of the labor market decline is sobering. The labor market is unlikely to return to trend (pre-pandemic) in 2021. It would take a hiring surge of unprecedented proportions to return the labor market to trend this year.

You can view more local employment and labor force trends from mid-2020 to early 2021, which give context going into the second-half of 2021. For the San Francisco region, click here. For the Silicon Valley region (“South Bay”), click here. For the Oakland region (“East Bay”), click here. For the San Diego region, click here. For the Los Angeles region, click here. See what job industries are under-pacing versus out-pacing others when it comes to the economic recovery coming out of the COVID-19 recession and into early 2021, including breakdowns of percentage losses, percentage growth, and lower-paying versus higher-paying jobs.

CU Weekly (the League’s weekly recap)
Published on April 16:

California continued to slowly add jobs to its labor market and economy in March. Meanwhile, local economists are projecting faster growth as springtime transpires. Read more here.

U.S. Census Bureau
Published in early March (“March: Household Pulse Survey”):

Survey results from March 1 show that the percentage of adults in California who expected someone in their household to experience a loss in employment income over the next four weeks was 24 percent. This was a decrease from 33 percent the month prior (and ranged between 42 – 46 percent from April to July of 2020). Although the survey is highly subjective to workers’ immediate feelings and emotions about their ties to the job market and labor force participation, its movement gives context into where the economy and local job markets may be headed.

Stanford University
Presented March 1 – 5 by the Stanford Institute for Economic Policy Research (“2021 SIEPR Economic Summit”):

This year’s summit focused on pressing economic issued. The 2021 summit’s virtual presentations and discussions included topics on:

Chapman University
Released April 7 and Jan. 14, respectively, by the A. Gary Anderson Center for Economic Research (in partnership with the Lowe Institute of Political Economy at Claremont McKenna College):

Recently, the California Composite Manufacturing Index reached its highest level since 2005. Based on a survey of purchasing managers across the state, this index measures overall manufacturing activity and increased from 61.2 in fourth-quarter 2020 to 67.1 in first-quarter 2021, meaning the sector is expected to grow at a faster sustained rate each quarter in 2021 compared to 2020. “The recovery of the manufacturing sector in California from the devastation of COVID-19 will be complete soon,” the report states. “It will come sooner than the recovery of the services sector.” Production, new orders, commodity prices, inventories of purchased materials, and employment are all expected to increase. Also, supplier deliveries are expected to slow even further due to increased demand for materials. Click here to view the full report.

The Chapman-Claremont McKenna California Consumer Sentiment Index surged nearly 42 percent in first-quarter 2021. The random survey of 500 Orange County residents rose from a value of 63.5 to 90. This is the largest quarterly move in the history of the sentiment index in terms of percent change or change in the index value. “It looks like we have turned the corner,” the report said. “It appears that the medical community and vaccinations are getting the upper hand on the coronavirus. The economy is opening up and people are going back to work. The positive trend should continue for the foreseeable future unless we are hit by another wave of the virus.” Click here to view the entire report on household finances, U.S. business conditions, purchases, and other economic indicators for California.

California Center for Jobs and the Economy
Released March 12 in an update report (“Unemployment Data Update”):

California’s unemployment insurance data and trends are slowly changing. The state’s unemployment data from Mach 2020 – March 2021 can be seen here, including trends on unemployment insurance claims, county tier status, COVID-19 vaccine status (share of doses used), backlog of unemployment insurance claims, and continuing unemployment claims.

California Business Data from U.S. Census Bureau
Released quarterly (“Business Formation Statistics”):

California’s year-over-year business formation applications are skyrocketing. About 47,700 applications (all different types and propensities) were filed in February 2021 versus the approximate 33,600 in February 2020 — a 42 percent jump. Many economists say a large portion of these represents the beginning of a much-awaited wave of small business jobs to come. You can dig more into the state-level U.S. data here.

Caltrans’ State and County Economic Forecasts
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 all-California or each county across the state. View the following California trends and projections from 2021 – 2025 (or click here to view counties).

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

Small business activity across California was down at varying amounts compared to pre-COVID levels (February 2021 compared to January/February of 2020). Across the state, activity was down -27 to -30 percent depending on the measurement analyzed. Put into context, the state was down between -60 to -74 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 see this negative percentage broken down by employment industry in California; or you can click here to learn more and pick a localized region or state.

California: Demographics, Labor, Education & Economic Resources

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