Job Market Exposes Toughest Part of Members’ Recovery: Realignment

Worker illustration

“Some job skills in demand last week could be out of style next week,” said John Hawkins as he reflected on how the Coronavirus pandemic is shaking up local labor markets. “Different states will have different dynamics, and there will be a lot of variations due to different industries.”

His comments are at the heart of how California and Nevada credit unions will exit the economic destruction from COVID-19, and consequently how member-owners put the pieces of their livelihood back together. The director of workforce development and community insights for Emsi said business leaders trying to gauge the pace of their own local recovery should analyze regional labor market and worker skills data as they wade through the post-crisis aftermath.

Emsi isn’t the only expert in this arena. Chmura, a similar consultant, is also taking a deep dive into workforce and job occupation numbers to uncover a real-time picture. So is Glassdoor’s Economic Research Division and Indeed’s “Hiring Lab” project.

These numbers on local laborers and credit union members could diverge drastically month to month as the economy heals and a clearer picture on supply-and-demand of labor versus jobs emerges. Every region is home to a distinct makeup of businesses, workers, and a unique economy experiencing its own pace of comeback for better or worse over the long term.

The Weekly, and Sometimes Volatile, Data
Job postings, occupational skills and employee adaptability give a sense of where local working households are headed across California or Nevada as Coronavirus forced credit unions into the same “essential” versus “non-essential” world as the communities they serve, Emsi's research shows.

In U.S. metropolitan regions with more than 500,000 residents, four localities in California have the highest share of local “essential” workers during the COVID-19 crisis on the top-15 list: Bakersfield, CA at 62.8 percent (No. 1); Stockton, CA at 59.3 percent (No. 3); Fresno, CA at 59.2 percent (No. 4); and Modesto, CA at 57 percent (No. 6). These are not huge tourist destinations with large tourism workforces compared to other areas.

On the flipside, the Las Vegas-Henderson-Paradise region in Nevada has the highest share of “non-essential” workers at 61.2 percent (No. 1), while no areas in California were in that top list.

In metros of 100,000 – 500,000 residents, five areas in California have the highest share of “essential” workers”: Hanford-Corcoran, CA at 75.5 percent (No. 1); Madera, CA at 68.4 percent (No. 3); El Centro, CA at 67.6 percent (No. 5); Salinas, CA at 65.1 percent (No. 9); and Visalia, CA at 63.3 percent (No. 15). No areas in Nevada or California were in the top-share list for “non-essential” workers in this particular cohort — and only Susanville, CA held a top spot (No. 1) for metros under 100,000 in residents, at 77.9 percent, in “essential” workers.

Robert Eyler, board member for Redwood CU and economist at Sonoma State University, said that some suburban-sprawl and quasi-rural areas in California and Nevada may see higher economic stability simply due to residents and workers being more spaced-out during the “shelter in place” policies from March – May. The initial and ongoing COVID-19 impact could be hitting major urban clusters harder since they are denser.

“A lot of the employment losses we’ve seen in California are likely in large metro areas, hence driving the average effect higher,” Eyler said.

Labor Market Fluidity: Greasing the Wheels
A huge factor in reestablishing a region’s livelihood is worker skills and possible job realignment.

Emsi continues plotting out “hot skills,” “cold skills” and “resilient skills” in localities across the nation as it looks at all employment postings region by region, filters through them to find the most volatile weekly changes, and examines the specific skills needed for these postings. Hot skills are connected to positions seeing the highest immediate growth rate in job postings, and cold skills are the exact opposite.

That makes resilient skills a crucial category. Geography plays a big role, and credit union members will find themselves in all sorts of circumstances.

“This is where California may have an advantage over Nevada in terms of its strength toward technology and professional jobs versus hospitality and related workers,” Eyler said. “In Las Vegas, there may be tech workers associated with major casinos. But without visitors, those ‘hot skills’ in local tech may not recover as fast.”

Hawkins said that looking at resilient skills takes out rapid-changing noise in the data. These are most important for local workers.

“As demand shifts in the marketplace and the COVID economy recovers, some will be able to take these resilient skills with them and move into different job positions more quickly than not,” Hawkins said.

Local labor market fluidity — a greasing of the wheels for any economy trying to recover — depends on a worker’s skill set and job history. “Displaced” workers’ losses are amplified during recessions as industries already operating on the financial fringe make permanent employment-shedding changes when the economy turns south, according to a Liberty Street Economics study by researchers at the Federal Reserve Bank of New York.

The most recent example was manufacturing job losses during the Great Recession. These losses were already on a roll before 2007, and the next two years exacerbated the downfall.

“Although a handful of states have improved their (workforce development program) targeting, the COVID-19 mismatch is likely to be more widespread than trade-impacted industries during the Great Recession,” the study states.

It’s foreseeable that workers retraining in the same occupational sectors laying them off before the pandemic won’t be called back in the same quantity. Those who “switch industries and labor markets” will perform better, the researchers say.

The occupations bound to see the highest resistance to coming back online are those combining high physical proximity with the least work-from-home capabilities, namely jobs in installation, maintenance, repair, construction, health care support, production, material moving, protection/security services, building maintenance, transportation, and food preparation. Other categories will feel a recovery drag; just not quite as much, according to another Liberty Street study.

Yet another study by Glassdoor shows that “occupational mobility” could leave a lasting imprint on the job market, permanently changing the hiring landscape for restaurants and related industries. Local job seekers who searched for “restaurant server” positions online in January and February have now flipped to searches in working from home online, data entry, office assistance, construction, accounting, business and consumer sales, retail, e-commerce, warehousing, logistics, driving, and medical assistance.

Before the March-to-May crisis, those same restaurant job seekers were also searching for positions in human resources, bartending, flight attendance, internships, food service, teaching, recruiting, event coordination, banquet serving, financial customer service, waitressing, and restaurant hostess/hosting. But not as much these days; these online occupational matches have plummeted.

Credit union leaders involved in their local workforce economic development boards will have the opportunity to engage this issue head-on over the next several months.

Economic Perception Versus Reality
Some unemployed and underemployed credit union members will feel a whole step behind the growing economy depending on their situation, personal opportunities, skill sets and geography. Whether they seek fuller employment, full-time work re-entry, or have exited the labor force (the pool of adults willing and able to work), all of these factors skew the picture.

Strategic planners at credit unions should remember that rising employment (or falling unemployment) lags economic growth in the first few quarters of a recovery. Any increase in national Gross Domestic Product (GDP), the most common quarterly measurement of any expansion, usually shows much faster progress ahead of a lagging labor market that's creating new jobs over the next 12 months to absorb sidelined workers, playing catch-up.

Putting aside wild quarterly swings from the COVID-19 crisis, a handful of private-sector and public-sector economists are forecasting that 2020 will be scarred by -4 to -7 percent annualized U.S. GDP growth, but 2021 could experience a solid 2 to 5 percent. The U.S. unemployment rate — having hit a record low of 3.5 percent earlier this year but now skyrocketing to 15 or 20 percent according to many estimates — could “recover” to a range of 8 to 12 percent by December.

These are extremely broad ranges to incorporate into any credit union’s strategic planning, but they pinpoint some light at the end of a dark tunnel.

They also don’t account for local characteristics. A May 14 economic update by the Southern California Association of Governments (SCAG) estimates that the six-county megaregion’s unemployment rate will remain at 19 percent by late 2020 and finally drop to 12 percent by late 2021.

Time will tell how these educated guesses turn out, and California and Nevada will surely take their own unique paths.

“We have to compare how close we are today to the original baseline of where we thought the economy was headed in 2020 before COVID hit — and then stack that against where we’ve fallen and how long it may take to come back,” Eyler said. “Getting back to baseline is tricky, because we have to rebuild our capacity to hire workers back to where it was in February.”

Fears abound of sliding into a second round of economic despair if virus transmissions increase due to colder weather and temperature changes later this year. Eyler said businesses and industries can take preparation measures today against any potential reinfection so a second-case scenario is economically offset. If companies, workers, consumers and households are able to enter a second lockdown without the frenzy accompanying this past one, the economy will fare better than not.

“We’re going to learn a lot from this,” Eyler said.

Pretty Healthy ‘Given Our Circumstances’
Today’s economic recovery, assuming one is already forming, looks a bit nutty compared to prior recoveries. Immediate and severe job unemployment has been uncharacteristically leading the way.

This is unusual. Historically, unemployment trails in the distance as financial markets and businesses on the frontlines of commerce react to new data, rippling over several weeks and months into households and consumers’ personal balance sheets through employment layoffs and purchase decisions.

“Usually we say people have lost their jobs because businesses are no longer able to support that person and they are released permanently,” said Chris Thornberg, founding partner of Beacon Economics and director of UC Riverside’s Center for Economic Forecasting and Development. “That’s not at all what’s happening right now. Ninety-nine percent of these people were laid off by companies that had no intention of shutting down until public health officials said they could not operate. That’s the key difference here.”

Thornberg provided insight during a May 14 remote presentation and discussion with credit union leaders, hosted by the California and Nevada Credit Union Leagues (view the slides here). He said it’s always difficult seeing a clear, current picture of the economy and job market in real-time. The volatility from COVID-19 makes it even harder today.

On an upbeat note, parts of the economy that were shut down and highly visible by their nature don’t weight heavily into quarterly or annual economic growth.

“They aren’t a huge part of GDP or household income,” Thornberg said. “By third quarter, most local closures of our economy should be gone, using China’s economy as an example. Right now we are already past the bottom. There’s no major shift in the economy like we saw during the Great Recession years ago, and people are expectedly waiting to go back to work.”

He said at some point, the economy will experience a massive surge in spending for all the “saving” consumers are accomplishing at their credit unions and banks.

Current U.S. household savings rates at financial institutions spiked to 33 percent over the past couple of months, the highest on record (outpacing the 1975 record of 17 percent) according to the U.S. Bureau of Economic Analysis. Like Thornberg, many think-tanks such as the Peterson Institute for International Economics are projecting this savings phenomenon will boost consumer spending in the short term and bolster the economy's recovery since much of the savings was forced onto households by stringent public health policies, not economics. The savings rate could settle at 11 percent by the end of 2022, the institute says (not seen since 2012 after the Great Recession).

As of May 20, the politically sensitive balance between commerce, consumerism and public health started etching a path. All states were entirely or partially open for the first time in nearly two months.

“For all the negative’isms and pessimism’s out there, the economy is actually pretty healthy given our circumstances,” Thornberg said.

Some of the very first seeds of recovery may have already been sown. A May 20 blog post by The Conference Board says the March-to-April downward trend in online job advertisements by the smallest of U.S. employers — the cohort dubbed as employment incubators and known for creating the most jobs from 2015 to 2019 — is reversing course. Both “active employers” and “new ads” are sharply increasing.

“Since many of these employers were forced to let go of their workers when their businesses were shut down, new hiring is likely partly reflecting the filling of previous positions in addition to hiring for new positions,” the post states.

Credit Union Outlook: 2020 – 2021
Like banks and any other industry, credit unions will take a large hit to their finances. They will do all they can to support their member-owners. Loan forbearances and payment extensions for those in financial hardship from unemployment or underemployment will weigh on quarterly earnings.

So will allowances for loan losses, a severely low interest rate environment (interest income), lower financial transaction volumes (non-interest income), and maintaining best efforts to keep staff employed and safe (higher expenses given the situation at hand). Lower quarterly net income and levels of capital are expected — the question is how low, and for which credit unions.

“There’s a lot to be concerned about,” said David Fieldhouse, director of consumer credit for Moody’s Analytics during a webinar discussion in late May on U.S. credit union loan losses going forward. Auto lending could take the biggest hit over the next couple of years as default rates lag unemployment data by 6 – 12 months depending on a credit union’s portfolio and its geographic footprint.

Using Equifax data modeling, the firm’s “realized” loan loss forecast for credit union autos (total outstanding loan balance) starts rising around Christmas of 2020 and doesn’t fall back to its pre-pandemic crisis level until Christmas of 2023, with a peak loss rate of 3.5 percent between late 2020 and early 2021. It’s a tough number to grapple with but much shorter than the prolonged five-year period from 2007 – 2011, although this period’s loss rate peaked much lower (2.2 percent).

“Automobiles are highly tied to the labor market, and there’s a real worry that auto prices are plummeting as you have less demand for autos,” Fieldhouse said. “We will see a large price adjustment in used car values. There’s not much room for borrowers to get rid of their cars if they need to. We could see credit union auto losses higher than we saw during the financial crisis.”

Losses in credit card lending — having much lower average dollar amounts — are the next obvious victim. The top 10 largest credit unions will see their combined credit card portfolios absorb up to a 12 percent loss by early 2021, while all other credit unions experience an aggregate 7 percent loss (much higher than the 5 percent losses for both asset groups combined from 2009 – 2010).

“Credit card loss rates had been slightly rising over time anyway, especially for the top 10 credit unions, which is not a good jumping-off point going into the pandemic,” Fieldhouse said. “There’s a lot of uncertainty about how losses could unfold. Credit cards are a product where stronger borrowers who don’t need help aren’t going to use it, and those who really need it will be drawing on their credit as much as they can. Losses could easily exceed anything we saw during the financial crisis of 2008, and they could come quickly.”

With much higher average loan amounts, first mortgages remain a bright spot for many but not everyone. Shouldering a 28 percent unemployment rate posted in Nevada by late May, the state registered the highest unemployment in the nation. Moody’s Analytics said all credit unions operating in the state could experience a combined 0.3 percent mortgage loan-loss rate by late 2022 to early 2023 — potentially one of the highest across the nation. For the time being, Nevada saw the largest increase in mortgage delinquencies in April according to an article published in The Washington Post.

Meanwhile, California's unemployment rate reached a record 15.5 percent and was expected to continue rising.

“The local risk profiles of these institutions will contribute to how losses unfold,” Fieldhouse said. “The road ahead for credit unions is something to be concerned about as there are problem spots depending on the regions you serve and how well your institution was faring over the past several years going into the pandemic.”

Somewhat cushioning this blow is the fact that credit unions nationwide entered the pandemic on very solid footing. According to Callahan and Associates’ 1Q 2020 TrendWatch webinar in early May, aggregate loan growth was hitting new records for quarters on end. The industry’s net worth ratio was 11 percent ($193 billion), and the $10.2 billion put aside for a rainy day in the allowance-for-loan-losses category hit a record high.

Return on assets (ROA) was a healthy 0.95 percent coming out of December, and net interest margin on loans was 21 basis points higher than the operational cost to generate and maintain them. The industry’s loan-to-deposit ratio had surpassed 82 percent recently, and delinquencies were low (below 0.7 percent).

Eyler said some credit unions that have the wherewithal can possibly shift around “what they have in the profitability area” to fully support their communities in a relatively short, devastating period of time.

“Credit unions that didn’t come into this with super strong balances sheets might find more trickiness in delivering that to members than the ones that had relatively strong financials,” Eyler said. “As a credit union, you should look for models in business that can provide efficiencies going forward. The revenue side of things is going to be squeezed for quite a while. We are still waiting for new economic and labor data to come in, which unfortunately is just the beginning of the pain.”

Using Labor Market Signals
Emsi’s complimentary impact-report tool may help some credit unions fine-tune projections for financial performance and balance-sheet metrics going into late 2020 and early 2021. The company routinely forecasts jobs, skills and occupations at the local level and gave its professional opinion to business, education, workforce, and economic development groups on a recent webinar as COVID-19 keeps employers on high alert.

You can click here to generate your free Regional Impact Report from Emsi (by county or metropolitan statistical area—MSA), which was created for businesses navigating the COVID-19 economy. It provides an overview of recent job posting activity; companies that are increasing job postings; companies that are decreasing job postings; occupations increasing in demand; occupations decreasing in demand; and synopsis of worker skills that will remain in demand through the Coronavirus pandemic’s economic crisis and beyond. (View a sample here)

The tool can also give a contextual picture of credit union members who are out of work, going back to work, or realigning their careers to provide for themselves and their households — whether in San Diego, Orange County, Sacramento, Las Vegas, Reno or elsewhere.

You can also access Emsi’s "Using Labor Market Data to Stay Informed and Adaptive" archived webinar and slide presentation to prepare your credit union for the local challenges and opportunities your members will face in the coming months.

Your Local Vulnerability Versus Mine
Chmura’s recent data can be of help too.

The Las Vegas-Henderson-Paradise, NV metropolitan statistical area (MSA) ranks No. 3 on the firm’s top-20 list of most economically vulnerable regions due to COVID-19. It is outpaced only by the Kahului-Wailuku-Lahaina, HI region at No. 1 and Atlantic City-Hammonton, NJ region at No. 2. Areas are measured by the impact potential related to the mixture of industry employment, not the rate of virus infection or local government’s reaction policies.

On the lowest-20 vulnerable area list, Nevada does not rank. However, California has four regions: Visalia (No. 1), San Jose-Sunnyvale-Santa Clara (No. 7), Bakersfield (No. 8), and El Centro (No. 12).

You can view the COVID-19 Economic Vulnerability Index here, which will use first-quarter 2020 labor market data to be updated soon. (Also scroll down to “impact of Coronavirus: Average Projected Job Losses” to see the statistical vulnerability of 21 different occupational sectors)

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