Inland Empire:

Area's Strength Before COVID to Aid Economic Recovery Into 2021

The pace of the Inland Empire’s economic recovery is wedged between California and the United States as local labor market and housing dynamics that allowed it to outperform other regions before the COVID-19 pandemic bolster its chances of better-than-average improvement going into 2021.

That’s according to the most recent forecast and trends presented by experts from the UC Riverside School of Business’s Center for Economic Forecasting and Development. These experts’ opinions spotlight intriguing viewpoints, trends, and projections so your credit union can plan appropriately.

UC Riverside’s ‘2020 Inland Empire Economic Forecast’
Presented on Oct. 13 (School of Business’s Center for Economic Forecasting and Development: “Riding the Coronavirus Coaster”):

The pace of the Inland Empire’s economic recovery from the COVID-19 recession earlier this year is wedged between two other geographic recoveries — California (the slower end of the spectrum) and the United States (the faster end). However, the local labor market, which had an unemployment rate in the high 3-percent range before the pandemic, is not likely to gain back all of its recession losses, as well as make up for lost opportunity job growth in the meantime, until mid-2022. Compared to other regions across the state, the Inland Empire’s economy was in “great shape” before the pandemic hit, which is helping its recovery. Reasons for this include the fact that there was no structural economic or financial imbalances before COVID-19, as well as a strong post-COVID bounce-back in real estate market and consumer spending. Nonetheless, there’s no doubt that major challenges abound for the Inland Empire’s labor market as it recovers — namely in a readjustment for workers and business formations versus business closures.

By early 2021, the Inland Empire’s economy should look markedly better than it has over the past several months, but with some ongoing challenges. From a national perspective on a quarterly basis, experts next year will probably look back on 2020 and see -4.8 percent U.S. gross domestic product (GDP) in the first quarter, -32 percent in second quarter, 36 percent in third quarter, and 8 percent in fourth quarter. The dramatic rebound on a national scope is steadily bringing up regions like the Inland Empire economically speaking, although local issues connected to being in California will put a drag on that pace of growth. How the statewide COVID-19 pandemic health policy choices are implemented at the local county/city levels will continue impacting the two-county region’s households and businesses, although both will continue slowly recovering.

By early October, nearly half of Inland Empire jobs lost from the COVID-19 recession had been recovered (about 100,000 positions) — but another 100,000 recovered jobs is needed to come back to pre-recession levels. The region lost about 13 percent of its total non-farm payroll job base (200,000 jobs), dropping from 1.55 million jobs to 1.35 million (but has now recovered to approximately 1.45 million). Yearly employment growth averaged about 4 percent from 2015 to early 2019, but then downshifted to 1.5 percent in the 12 months leading up to the COVID-19 pandemic and recession due to a very low unemployment rate (nearly everyone who wanted a job had one).

While employment growth in the Inland Empire is outpacing the state since the economy started recovering from the COVID-19 recession, it is still trailing the nation. The Inland Empire’s unemployment rate now stands at 10.4 percent (Sept. 30 data), a far cry from the 3.9 percent registered a year earlier. The rate in the region is now below the state’s 11.4 percent. The region’s labor force has been hard hit by the pandemic. From August 2019 to August 2020, about 49,200 workers fell out of the Inland Empire’s labor force (adults who are willing and able to work) — which is a 2.4 percent decline. This decline is more modest than the state’s negative 3.7 percent but higher than the nation (-1.9 percent). Because of the decline in the region’s labor force due to labor market readjustment during the pandemic crisis, the local unemployment rate is considered artificially lower than it really is (probably another 2 – 3 points higher in reality), although this was already true even in a healthy pre-COVID economy.

The Inland Empire’s labor force (pool of local individuals willing and able to work) has fallen to a level not experienced since late 2017 (2.03 million individuals). This number had hit a record 2.07 million individuals in 2019. It means the COVID-19 recession earlier this year knocked 40,000 individuals (those who were once willing and able to work) out of the Inland Empire’s labor force for various reasons.

Unsurprisingly, the largest Inland Empire job losses have been concentrated in the region’s leisure/hospitality sector, with 55,500 fewer workers than a year earlier — a 31.7 percent decline. Other significant job losses have occurred in retail trade, “other” services, manufacturing, and government. These are the sectors most impacted by government mandates and consumer reservations. However, once the spread of the COVID-19 virus is contained, these sectors should see significant job gains as companies ramp up production to meet surging consumer demand. Annualized growth in nearly all local job sectors from August 2019 to August 2020 are negative, with two exceptions — wholesale trade at 1.8 percent growth, and transportation/warehousing/utilities at an approximate 0 percent change.

Although Inland Empire job losses have been widespread, a handful of bright spots exist amid the turmoil. The surge in e-commerce purchases has helped keep the region’s transportation/warehousing/utilities sector resilient over the past several months. Payrolls in this sector have fallen only 0.2 percent (essentially a 0-percent change) over the past year compared with a 3.9 percent decline across the entire state during the same period. This sector has continued to expand its footprint in the region, with Amazon opening a fulfillment center in Beaumont, CA in September. Additionally, local worker wages have been steadily rising, although relatively slowly compared to recent years before. From first-quarter 2019 to first-quarter 2020, wages grew 2.4 percent (well behind the 4.2 percent pace in California overall).

One of the most promising signs pointing to the Inland Empire’s economic recovery is consumer spending. Local consumer spending fell rapidly at the start of the COVID-19 downturn, dropping 32 percent in Riverside County and 31 percent in San Bernardino County. Although spending has not fully rebounded, as of mid-September it was down only 6 percent in Riverside County and 8 percent in San Bernardino County since COVID-19 hit the economy (much lower than the 12 percent decline in the state overall).

Inland Empire residents are still spending more time at their homes versus not. As of mid-September, time spent outside the house for locals was down 10.5 percent from March in Riverside County and 9.2 percent in San Bernardino County, compared with 12.9 percent in the entire state during the same period. In similar fashion, Inland Empire residents are also spending less time at their workplaces. This is a result of increased layoffs, as well as the ability to work remotely during business closures. From late February to late August, time spent at workplaces was down 34.3 percent in Riverside County, 31.3 percent in San Bernardino County, and 37.1 percent in the entire state. Inland Empire residents are also spending more time at retail and recreation sites than other Californians: down 21.3 percent in Riverside County and 17.6 percent in San Bernardino County compared to a 26 percent decline in the state overall.

More Inland Empire trends and analysis are available. You can click here for the forecast presentation booklet, which includes the latest local economic trends on residential and commercial real estate, rents and vacancies in the apartment market, residential building permits, commercial building dynamics (office, retail and industrial), population and migration, household income, poverty, and health insurance. You can review the forecast slides, which provide a different type of analysis aside from the booklet mentioned above. And finally, an archived video of the Inland Empire keynote speaker portion of the forecast is available here (and video of the California/U.S. forecast speaker portion is here).

Inland Empire: Demographics, Labor, Education & Economic Resources

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