The United States economy is bouncing back rapidly from the severe and unprecedented pandemic-driven downturn that began early this year, according to a new economic forecast released today at the 11th annual Inland Empire Economic Forecast Conference.
Despite the alarming and record-breaking decline in economic output that occurred in the 2nd quarter, and the ongoing painful effects of the COVID-19 epidemic itself, the economy remains fundamentally strong, and in many ways is already rebounding.
“The United States hit its low point in the current downturn back in April, and since that time the nation’s economy has been moving back towards more normal levels of economic output,” said Christopher Thornberg, director of the UC Riverside School of Business Center for Economic Forecasting and one of the report authors. “As odd as it may sound, technically, this recession is over, making it the deepest, but shortest in U.S. history.”
Thornberg emphasizes that this does not mean harsh recessionary effects are not still being felt, especially among some industries and individuals, but that everything from the unemployment rate to the rate of job recovery to consumer spending indicate that the economy is growing. Moreover, as spending has been curtailed for the past seven months, the ‘fuel’ that has built up in the form of increased wealth and savings is waiting to set off a vigorous expansion once the virus is controlled.
Despite the ostensible contradiction of a deep, short recession, the new forecast argues that as dramatically bad as the 2nd quarter numbers were, the pandemic-driven shocks to the economy were largely transitory and not based on any fundamental financial or economic imbalance. Today, the share of the U.S. labor force that is truly unemployed (meaning workers who have permanently lost their jobs or are actively looking for new work) stands at just under 5%, significantly lower than the 8% plus rate seen at the peak of the Great Recession. Workers who consider themselves temporarily laid off make up about 3% of the current U.S. unemployed workforce.
The new forecast includes outlooks for the U.S., California, and Inland Empire economies. Across geographies, the forecasts are relatively rosy but come with a key caveat: Full recovery and resumption of economic activity/output is firmly dependent on containing the spread of the COVID-19 virus.
Select Key Findings:
- The underlying strength of the U.S. economy at the start of the pandemic has been excessively reinforced by the Federal government’s $3 trillion stimulus plan. Lost economic activity in the first half of 2020 stands at approximately $600 billion, 20% of the size of the stimulus package.
- Total personal income in the United State has actually increased during the course of the pandemic as spending has fallen. That has caused consumer savings to shoot up to almost $1.2 trillion, four times what it was in the 4th quarter of 2019.
- The California labor market continues to recover from the effects of the pandemic although the rate of job growth has slowed in the months since June’s strong bounce when 558,200 positions were added back into the economy. The slowing rate is due in large part to the reimplementation of business closures and restraints as a result of the virus resurging.
- As health-mandated restrictions in the state continue, cities in California that rely heavily on tourism/visitors and the transient occupancy tax, will experience real hardship due to revenue losses.
- As of this writing, the cities in California with the largest job losses are Santa Cruz
- (-14.7%), San Luis Obispo (-13.3%), Salinas (-12.4%), and Oakland-Hayward-Berkeley (12.2%). Three out of four of these locations are home to major universities and, as instruction has moved online, they have felt a distinct impact from the lack of student spending at local and surrounding businesses.
- The Inland Empire’s labor market continues to steadily recover from the pandemic, adding 74,700 jobs since April’s lows. Still, on an annual basis, year-over-year employment has fallen by 132,900 jobs. The region is outpacing the state in terms of job recovery but trailing the nation.
- Not surprisingly, the sectors experiencing the largest job losses in the Inland Empire are Leisure and Hospitality, Retail Trade, Other Services (includes hair and nail salons), Manufacturing, and Government. Once the virus is controlled, however, these sectors are expected to ramp up production to meet surging consumer demand.
The 11th annual Inland Empire Economic Forecast Conference was held virtually on October 13th. A copy of the forecast book can be downloaded in its entirety here.