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The Inland Empire Economy: Where We Are Right Now and Where We Are Heading by Manfred W

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The Inland Empire Economy: Where We Are Right Now and Where We Are Heading by Manfred W The Inland Empire Economy: Where We are Right Now and Where We are Heading by Manfred W. Keil and Robert A. Kleinhenz1 Last Thursday’s second quarter U.S. Gross Domestic Product (GDP) report confirmed numerically what we all had experienced in recent months: this is an economic downturn the lies of which present-day Southern Californians have never seen before. From the first quarter to the second quarter, the national economy contracted by 32.9% if calculated at an annual rate. The actual quarter-to-quarter decline was “only” 9.5%, unprecedented for the post World War II period. While this report of U.S. GDP became available within a month of the most recently completed quarter, the State figures are lagged by a quarter (California’s GDP fell 4.7% in the first quarter of this year) and regional GDP numbers for the Metropolitan Statistical Area (MSA) of San Bernardino County and Riverside County (Inland Empire) will not come out until sometime late next year. However, once published, they will be equally spectacular. Reports on the labor market are released monthly and show positive developments from April to June. Table 1 presents the big picture but just listing three releases: February (last month of the previous expansion), April (depth of the recession), and June (most recently available data). Table 1: Unemployment Rates, Southern California, MSAs, SA, February 2020 – June 2020 U.S. CA LA/OC IE SD Ventura Feb 2020 3.5 3.9 3.9 3.9 3.0 3.4 Apr 2020 14.7 16.4 19.0 15.0 15.2 14.4 June 2020 11.1 14.9 17.6 14.0 13.5 12.6 Across the board, the numbers suggest that the worst is behind us with unemployment rates falling everywhere. The Inland Empire is in the middle of the pack compared with other large MSAs across California. To understand this recession, and the recovery trajectory, you must look at which sectors have suffered the most. Next you have to think about the share that these sectors occupy in that area. Almost two-thirds of the Inland Empire’s employment losses from February to April occurred in the five sectors that largely provide services in face-to-face settings: Leisure and Hospitality, Other Services, Retail Trade, Health and Education, and Professional and Business Services (see Figure 1 Keil is Chief Economist, Inland Empire Economic Partnership and Associate Director, Lowe Institute of Political Economy, Claremont McKenna College. Kleinhenz is CEO and Chief Economist, Kleinhenz Economics, Senior Fellow, Inland Empire Economic Center, and California State University Long Beach. 1). Other employment losses, including those by the government sector, are dwarfed by comparison. There will be no recovery without progress in the hardest his industries. The appearance on this list that may have surprised you was Health Services, but non-essential health services fell sharply during the shutdown including visits to dentists and routine checkups. Figure 1: Employment Losses and Subsequent Gains, Sectors, Inland Empire, February – June 2020 0 -10000 -20000 -30000 -40000 -50000 -60000 -70000 -80000 -90000 Number of Jobs gained May-June Jobs Still Lost Compared to Feb 2020 Jobs lost in May and June Jobs lost in April Note: All sectors are recovering from the maximum employment loss experienced from February to April, with the exception of Manufacturing and Government, that continue to shed jobs. While every industry recovered some shutdown-related job losses in May and June, sectors such as restaurants and personal services establishments (for example, hair and nail salons) may reverse course in July as recent surges in virus cases have triggered renewed business closures. Note that we are not yet in the dreaded second wave, but still in the echo of the first wave because we have been less vigilant with respect to social distancing, wearing facemasks, and thoughtful setups at work in response to Coronavirus fatigue. Medical research has shown that we can explain differences in outbreaks across U.S. counties by three factors: social distancing/wearing of facemasks, population density, and temperature. As President Trump claimed earlier this year, higher temperatures do result in lower infections. However, just as exercising for another hour cannot make up eating four In-n-Out burgers with fries, the beneficial effect of hotter weather has been neutralized by the lack of social distancing. Where do we go from here? The shape of the recovery will depend on both the supply and the demand side of the economy. On the supply side, we will have to learn to live with the virus until a vaccine becomes available later this year and is administered in sufficiently large numbers. The timeline can easily roll into next year. Until then, social distancing will be essential. On the demand side, consumers must be convinced that it is safe to return to venues they are reluctant to use: public transportation, hotels, air travel, amusement parks, schools and universities, and hospitals or simply visits to the doctor. Again, none of this will happen if we do not bring the virus under control. In short, returning to work and fighting the virus are not opposing objectives. Rather, fighting the virus is a prerequisite for the economic recovery. 734 words .
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