The Beacon Outlook: California
Welcome to The Beacon Outlook
This succinct, quarterly outlook delivers up-to-date analysis of leading indicators driving the national and state economies, including GDP growth, employment, housing and commercial real estate markets, taxable sales, international trade, and more.
VACCINE ROLLOUT GATHERS SPEED
As is the case nationally, the pace of vaccinations in California has gathered significant momentum over the past month. Importantly, the state has reached its target of administering 4 million COVID-19 vaccine doses specifically within its most disadvantaged areas — a goal that makes it easier for counties to widely reopen businesses and other public spaces. As vaccines boost consumer confidence in returning to their normal activities, and lead to a further easing of business restrictions, the labor market recovery in the state will accelerate.
CALIFORNIA LABOR MARKET RECOVERY LAGGING NATION
The performance of California’s labor market helped to fuel national job gains in February and March. The state’s unemployment rate also declined to 8.3% in March, down from 9.0% at the beginning of the year. Still, unemployment in California remains elevated relative to the United States overall (6.0%). Furthermore, the state finds itself in a deeper hole with respect to jobs lost than is the case nationally. As of March, the state had 8.6% fewer jobs compared to pre-pandemic levels, while the national economy had 5.5% fewer jobs. California’s relative underperformance in the labor market will likely translate into higher job gains in 2021.
If the labor market has been the weakest aspect of the state’s economy, residential real estate has been by far the strongest. California’s residential real estate market has boomed over the past year, likely driven by three factors. First, the typical homebuyer is wealthier and has been less affected by the labor market fallout from the pandemic. Second, mortgage rates have fallen to historic lows, spurring purchasing activity. Finally, inventories are near historic lows and housing shortages have propelled home price growth through 2020 and 2021.
Share of California Residents Vaccinated
As of April 30, over 30 million doses of the Pfizer, Moderna, or Johnson and Johnson vaccines have been administered in the state. Forty-eight percent of California residents have received at least one shot, while 30% have received two doses.
Fewer People Employed in California
There are still 1.5 million fewer people employed in the state compared to pre-pandemic levels. The jobs fallout has been uneven across different sectors of the economy with some industries such as Transportation actually expanding and others, such as Leisure and Hospitality, suffering tremendous losses.
Home Price Increase in California
California’s housing market has remained robust throughout the pandemic. Home prices in the state increased by 15% from the 4th quarter of 2019 to the 4th quarter of 2020, compared to 5% growth the year before.
VACCINATIONS IN CALIFORNIA 2021
CALIFORNIA HOME SALES AND PRICES
CALIFORNIA FORECAST – KEY INDICATORS
COVID CONTAINMENT SETS STAGE FOR GROWTH
The 2020 recession was unlike any other in recent history as it was not caused by an imbalance or problem in economic fundamentals. Prior to the outbreak of the pandemic, unemployment rates were at generational lows, wages were rising, and consumers and businesses were healthy.
The economic fallout from the pandemic happened quickly and hit the economy hard. With the decline in new COVID-19 cases in the state, and with an accelerated vaccination roll out, the worst effects of the economic fallout surrounding the pandemic are in the past. In terms of containing the virus by vaccination, the state has performed slightly better than the nation overall: 44% of the U.S. population has received at least one shot compared to 48% in California. The share of the nation’s population that is fully vaccinated, 30%, matches the state. The containment of the virus in California sets the stage for a year of extraordinary growth.
The pandemic did its worst damage in California in the labor market. As of March, there were still 1.5 million fewer people employed in the state than there were prior to the crisis. Moreover, both the job losses and the recovery has been very uneven. The Transportation, Warehousing and Utilities sectors actually gained jobs during the pandemic, buoyed by the increase in online shopping and deliveries of goods. On the other hand, more than 50% of the total job losses have been within just two sectors of the economy: Leisure and Hospitality and Other Services (the latter includes personal services businesses such as hair and nail salons). As the economy opens up, however, these sectors should see a strong bounce back with solid employment gains in 2021.
The economic fallout from California’s labor market losses disproportionally impacted the lowest wage earners. However, an unprecedented policy response by the federal and state governments went some way towards dulling the pain. Since California’s labor market underperformed the nation in 2020, the expectation is that this will translate into higher job gains for the state’s economy in 2021. As the economy opens up, there will be more room for growth in California’s labor markets.
While the state’s job recovery still lags other economic indicators, many aspects of the economy have already returned to their pre-pandemic trends, and some, such as the housing market, boomed over the past year. Indeed, home prices in the state increased by 15% from the 4th quarter of 2019 to the 4th quarter of 2020, compared to just 5% growth from the 4th quarter of 2018 to the 4th quarter of 2019. A severe shortage of housing supply in California will continue to place upward pressure on home prices in the year ahead.
Sales of single-family homes in the state also increased – by 24% from the 4th quarter of 2019 to the 4th quarter of 2020. The year before, home sales grew by just 8%. This rate of sales growth is unsustainable in 2021, however, as supply and inventory constraints will act as significant headwinds.
Given the underlying strength in the economy, unprecedented consumer savings, and the high level of fiscal and monetary support from the government, the pandemic’s economic effects will increasingly diminish, and soon public discourse will, and in some respects has already started to, turn towards the state’s long-standing challenges surrounding housing affordability, inequality, population growth, and tight labor markets.
For more information
Beacon Economics is a leading provider of economic research and forecasting. Our custom analysis helps inform the financial and economic decisions of private and public sector clients ranging from the State of California to Wall Street hedge funds.
To learn more about Beacon’s work, please view our practice areas or contact:
Director of Business Development Rick Smith at [email protected] or 858-997-1834
Managing Partner Sherif Hanna at [email protected] or 424.646.4656