Los Angeles

The 2020 pandemic-born recession left few places unscathed. Like much of the country, Los Angeles sustained heavy and persistent damage to its labor market. However, despite an economic slowdown in the fourth quarter of 2020, the outlook for 2021 is positive. New cases of the virus are plummeting, while the vaccine rollout is preceding surely, if a little slowly. The easing of business restrictions, combined with unprecedented levels of stimulus, means economic activity will steadily pick up speed in the first quarter, and will gather significant momentum as the year advances. Even so, small businesses have felt the pain of the economic fallout especially keenly, with many establishments yet to reopen and revenues down significantly.

The outbreak of the coronavirus pandemic and the public response to it caused Los Angeles County employers to shed 727,000 jobs, fully 16% of all jobs in the region. This sent unemployment figures soaring from 4.3% to 21.2%. While it was initially hoped that many of these job losses were temporary, as of December 2020, only 38% of them have been recovered, leaving a shortfall in Los Angeles County of 448,000 jobs when compared to pre-pandemic levels. This means there are 9.7% fewer jobs in Los Angeles County than there were prior to the pandemic.  The region’s labor market fared slightly worse than the state as a whole, where employment is still 8% lower than pre-pandemic levels. The unemployment rate has since fallen to 11% in Los Angeles, higher than Orange County (9.0%), San Diego (9.3%), the Inland Empire (10.7%), and the state overall (9.0%). December was the first month since May when the Los Angeles metropolitan division reported a month-to-month increase in the unemployment rate.

The region has fared less well than other places in the state because of its mix of industries. Around 33% of job losses in Los Angeles County occurred in the Accommodation and Food Services sector. Large losses also occurred in Other Services (-9%), which includes hairdressers and nail salons, and Government (-8%). In addition to the woes faced by the Leisure and Hospitality sector in Los Angeles County, many branches of the entertainment industry are operating at greatly reduced capacity. As of December, the number of jobs in the Accommodation and Food Services sector was around one-third below its peak; Arts and Entertainment experienced a similar fall. All sectors of the Los Angeles County economy lost jobs in 2020, although Financial Activities and Construction and Logistics saw the smallest losses, in relative terms.

With a surge in COVID-19 cases at the end of 2020, Los Angeles once again imposed serious restrictions on local businesses, including another ban on outdoor dining. High-frequency data provided by Opportunity Insights’ Economic Tracker shows the impact this had on small business closures, as well as their revenues. (Note: ‘small business’ is defined as those with annual revenues and/or employees below thresholds set by the Small Business Administration. These vary across industries.) Throughout October and November, the number of open small businesses in Los Angeles hovered around 27% below January 2020 figures. However, by the start of 2021, this number had dipped to around 39% below the January level, indicating a steep decline in the number of open small businesses at the end of 2020. In this regard, the region performed better than the state, where the number of small businesses open is around 41% less than January 2020 levels. However, the new year has seen some improvement. As of February 2021, the number of open small businesses in Los Angeles is 34% below pre-COVID levels and 35.4% below pre-COVID levels in the state as a whole.

The new wave of shutdowns affected different industries at different rates. In Los Angeles, the Leisure and Hospitality sector is struggling the most, with a drop in open businesses of around 50% compared to January 2020. Figures are roughly the same for California as a whole.

Professional and Business Services is the best-performing sector in Los Angeles, with the latest data indicating only a 24.8% drop in open small businesses compared to a year ago.

In terms of revenue, small businesses in the Leisure and Hospitality industry have seen the most substantial fallout. In mid-October, revenues in Leisure and Hospitality hovered around 55% below pre-pandemic levels. As business restrictions increased at the end of 2020, however, revenues plummeted, reaching 78% below pre-pandemic levels by late January 2021. Since then, there has been a slight recovery, with the latest figures indicating that revenues are now 68% below pre-pandemic levels. As of February 2021, no other industry has fared as poorly. Revenues in Transportation have fallen only 22% relative to pre-pandemic levels, while those in Professional Services and Education/Health have fallen 29.5% and 31% respectively. As the economy improves in 2021, more businesses will open and revenues will pick up.