California’s economy is recovering, but new report shows it’s not there yet
Waiting for a big bounce-back from COVID where jobs are plentiful and prices are stable? Be patient. The economy is recovering, but somewhat more gradually than anticipated, a new economic forecast released Wednesday says.
“In June, it was noted that the COVID-19 pandemic continued to cast a shadow over the California forecast. Three months later, the shadow persists,” says the latest economic forecast from the UCLA Anderson School of Management.
The outlook is cautiously optimistic. As people become vaccinated and the state continues to reopen, “a clearer-though-still-uncertain picture emerges,” the report says.
An important key to any economic recovery is consumers’ attitudes. The more confident they are that things are improving, the more they’re willing to spend.
The consumer confidence level is not yet at that desired point. “The memory of the Delta variant will continue to spook consumers, creating a slower return to earlier consumption behavior than previously forecast,” said Jerry Nickelsburg, Anderson School forecast director.
California’s unemployment rate has been stubbornly high, and its 7.5% August rate was the second highest state rate in the nation, behind only Nevada. While California’s rate is expected to drop, it will take awhile before it matches the national rate, which was 5.2% in August.
“The unemployment rate will come down. Because of the Delta variant it will come down more slowly than we thought,” Nickelsburg told The Sacramento Bee in an interview.
Low COVID-19 rates
Yet California’s rate of COVID cases per 100,000 people is by far the lowest in the nation. Over the seven days ending Monday, the state had 42.2 cases per 100,000 people, according to Centers for Disease Control data.
Only Connecticut, at 68.1, fell under 100 among the 50 states. Alaska topped the list at 784.5.
One reason for the big California unemployment number is that the state relies more than most on tourism and hospitality industries, and those industries continue to be hurt by a combination of closed or restricted venues and virtually no international tourists.
Lagging consumer confidence also hurts these industries. People are more reluctant to dine out, said Nickelsburg, or take “staycations.”
The forecast anticipated the state’s unemployment rate averaging 6.7% this winter, then steadily dropping until it hits what economists call full employment — a rate averaging 4.4% — in 2023. But the forecast sees a national rate that year averaging 3.7%.
Other state economists have similar outlooks.
Remember, said Song Won Sohn professor of economics at Loyola Marymount University, ”California has not recovered fully from the pandemic.”
Added Mark Schniepp, director of the California Economic Forecast in Santa Barbara, “California will move in tandem with the U.S. We might even see it restore proportionately more jobs than the U.S. next year, but because it suffered more trauma, it’s unlikely that all pandemic induced job loss will be restored before mid 2023.”
Cost of California living
A threat beyond COVID could hamstring growth, and that’s prices. The national Consumer Price Index, which measures a wide variety of prices, has been increasing at its steepest rate in 13 years.
In California, prices rose an average of 1.8% last year, and The Anderson forecast predicted they’ll go up 4.2% this year and again next year, falling to a 2.9% rate in 2023.
One problem is supply and demand. When the COVID pandemic began in March 2020, people cut back on travel, restaurant meals, entertainment, and elective medical procedures, Nickelsburg said.
“The realization that we’re likely to be spending more time at home for the long-term has led people to invest more in their homes, in home improvements and home furnishings,” he said.
This is not typical consumer behavior, and supply chains were not ready. That has meant higher prices since demand is up and supplies are down.
Should supplies become plentiful — as many economists expect — prices should stabilize.
Schniepp called the current situation a “quasi-pandemic environment,” noting “We can’t be sure how they will impact consumer demand, business revenue, or the economy in general.”
Another uncertainty is interest rates. They’ve remained at historic lows for years, but last week the Federal Reserve indicated it could seek to increase rates sooner than expected, though probably not for another year.
Rates should still remain historically low, though. Nickelsburg saw such increases as having little effect on the overall economy.
This story was originally published September 29, 2021 at 1:00 AM.
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