Can the economy return to pre-COVID pandemic strength? – Silicon Valley
Ultimately, the pandemic shackles in California’s economy will have officially lasted 452 days – from a full lockdown starting in March 2020 to a business world that is all but reopened after June 15.
The economic toll of strict mandates to slow the spread of COVID-19 was high. For years to come, there will be great debates on government pandemic policies.
California has lost 1.4 million workers since we learned of the word ‘coronavirus’. Yes, the California economy is huge and is recovering, but the number of jobs in April is only 92% of pre-pandemic levels in February 2020.
Only five states – Hawaii, New York, Nevada, New Mexico, and Massachusetts – and Washington, DC, are further behind.
But let’s not forget why the state has restricted business so severely: to contain the pandemic that has killed nearly 64,000 Californians. On a per capita basis, California’s death toll was below the national average and above 30 states.
California this year has slowly allowed many businesses to return to some normalcy. The big “official” trade reopening on June 15 will be a major opportunity to reverse much of the economic pain.
Like any financial hub, the impact will not be universal.
It may be business as usual for many niches already close to their pre-pandemic pace. For many industries, it will be an essential lifeline. And for some businesses, reopening can herald surprising challenges.
Let’s look at California’s potential winners and losers as the throttle is pulled from the economy.
The unemployed: new choices
California has 676,000 more unemployed “officially” than before the coronavirus crushed the economy.
The full reopening should mean that the unemployed have more options to work. UC Berkeley economics professor Jim Wilcox said job opportunities could flourish in manufacturing.
Companies making goods in short supply will hire, he said. One example is the limited stock of computer chips which are as important to our vehicles as an engine.
“If you’re missing a few tokens, you can’t make this car,” Wilcox says.
Travel and leisure: more fun to come
If any businesses are going to bounce back in a reopened economy, it’s the leisure industries.
The lockdown and a widespread reluctance to travel have hammered the state’s tourism businesses over the past 14 months.
Together, California’s hotels, entertainment attractions, recreation facilities and places of entertainment have lost 303,000 jobs in the pandemic era. This “fun” industry only represents 62% of the workforce before the virus.
The reopening will motivate travel and reduce attendance limits, which will be a big boost for employers.
“The hotels along the coast are making some of the best revenues in May they have ever seen, so a full opening will only add another game to this fire,” said tourism expert Alan Reay at Atlas. Hospitality.
When it comes to full-service business hotels, he says, “It will take time, but now you will see that future bookings will start to increase.”
The office market: reloading
Any movement back from the pandemic’s “work from home” to traditional workplaces will bring life back to many empty office spaces.
In San Francisco, 16.7% of offices were vacant in the first quarter of 2021 against 5.2% at the end of 2019, according to brokerage JLL. In Los Angeles, it’s 17.5% vacancy now compared to 13% before the pandemic.
Yes, there is a lot of guesswork about how many workers are returning to their old workspaces. And it doesn’t just come from the bosses.
A JLL survey of 3,000 workers found that 33% of the workforce wanted to end WFH, up from 28% in October 2020. The desire for remote work fell to 1.5 days per week against 1.9 days in October.
The relaxed June 15 rules mean many employers will expedite returns to the office, said Peter Belisle, JLL’s director for Southwestern U.S. Markets.
“Office owners are seeing more tours with potential tenants as well as less sublet space coming into the market,” he says.
Restaurants: changing models
The virus has changed where we have dined. It has become a world of fast food and take out.
Just look at employment in the sector. “Limited-service” jobs in restaurants statewide represent 90% of pre-pandemic staffing levels, compared to 69% in full-service restaurants and 60% in bars.
Fast-food chains’ first-quarter sales were down 4% year-on-year compared to a 10.5% drop among their sit-down peers, according to a study by restaurant financier Trinity Capital.
Sit-down restaurants have competed in improving take-out and delivery. The reopened dining rooms will attract more customers inside. Serving more drinks and selling more side dishes and desserts will increase the bottom line for owners.
“As the dining rooms began opening in May, some of the restaurant sales benefiting the (quick-serve) segment began a slow but steady migration to sit-down restaurants,” writes Trinity Capital.
Employers: help sought
The reopening can cause employers to think “be careful what you want”.
Where are the workers who will serve this new wave of customers?
Labor shortages have forced some employers to seek staff, using incentives such as wage increases to attract new hires. Recent unemployment trends can tell us more about why it is so difficult to hire.
The costs of employing bosses in Southern California rose 4.8% in the year ended March, the country’s biggest jump according to a federal index. The region’s combined unemployment rate was 9.2% in April.
But in the Bay Area, costs rose only 2.1% with unemployment at just 5.6%
Wilcox of UC Berkeley does not accept the argument that increasing unemployment benefits prevent workers from the labor market, especially in hospitality and construction. Rather, he thinks “there are better jobs to be had, with higher pay, to do things.”
Housing: time to slow down?
Shopping for a home or refi? Get cheap financing for the pandemic while it lasts.
Historically low rates fueled a buying frenzy that pushed the California median selling price for an existing single-family home to an all-time high of $ 813,980 for April, up 40% from February 2020.
“We expect the market to remain strong, but return to a healthier and less hectic pace in the coming months,” said Ali Wolf, chief economist at Zonda.
Distance education and working from home have prompted many households to seek larger accommodation, sometimes in remote communities. Will a return to the office tarnish this slice of demand?
In addition, soaring house prices have created affordability issues. Monthly home payments are going up because rate cuts don’t match appreciation. And the value of a country’s reopens is expected to generate enough economic momentum to force mortgage rates to rise, further eroding the notion of affordability.
“If / when rates go up, the extent and speed are of critical importance,” says Wolf. “A gradual increase could promote housing, encourage people in retreat to get started. A rapid and significant increase would quickly cool the market.”
Drivers: a double whammy
Gas prices are at a level not seen in seven years (save two weeks in 2019), but buying a vehicle could be even more painful on your wallet.
An average gallon of regular California gasoline was $ 4.08 last week, up $ 1.44 or 55% from the pandemic low, according to federal energy statistics.
Drivers will see the reopening further filling the highways and parking lots. The rebound in travel has put a key ingredient, crude oil, at its highest price since fall 2018. But increased supply could stabilize prices at the pump, or even lower them a bit.
“From an inventory standpoint, there’s a lot of gas in the tank to support what people want to do,” says David Hackett of Stillwater Associates.
If you need wheels, it will be difficult to find new cars due to these chip shortages. Used cars are therefore a very popular product.
The average used car in California cost 18.7% more in April than 12 months earlier, according to the purchasing department iSeeCars. Only 15 states recorded larger increases.
“Car prices will remain high for the rest of the year, which means buyers should not switch vehicles,” said Karl Brauer, executive analyst at iSeeCars.
Buyers: pay the price
Remember when the pandemic started when traders cut prices?
Discounts have been declining for months and the reopening is expected to attract more customers to the stores. Other business owners will likely raise prices to recoup the higher costs of stocking their stores.
Look at local inflation. In Los Angeles-Orange County, May’s inflation rate was 3.9%, the highest since October 2018. For the Bay Area, its most recent rate of 3.8% in April was the highest high in two years. And it’s not just California: Nationally, May’s 5% inflation rate was the highest in 13 years.
A rebound from last year’s weakened and stuck economy is history. But some price increases will persist.
“We already have significant inflationary pressure, but reopening the economy will exacerbate it,” said Jim Doti, professor of economics at Chapman University.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be contacted at [email protected]