Jobs coming back to Marin County; inflation worries may be temporary: economist

Growing incomes, declining unemployment, relatively low interest rates to 2023 and subsiding inflation are forecast for the U.S., California and Marin County economies by a prominent area economist Wednesday.

Marin Economic Forum Chief Economist Robert Eyler, also a professor of economics at Sonoma State University, put timelines on some of those key indicators during a Marin Economic Briefing webinar on Wednesday. He predicted 6.5% income growth for 2021 continuing into 2024 and low interest rates through 2023, following the recent inflation rise to 4.99% for the 12 months ending in May.

He raised warning signs of the impact of the COVID-19 variants on the economy nationally and also provided theories on what is causing some workers to choose not to return to work.

California’s economy rebounds

In California, Eyler said jobs growth continues and is forecast to recover by mid- to late 2022. However, he noted that the Los Angeles metro area remains the “key drag” on state numbers, but many counties are back at pre-COVID levels of residential employment, including Napa County.

The Journal reported that Marin’s May unemployment rate had decreased to 4.3%; Sonoma County’s, 5.3%; Napa County, 5.5%; Mendocino County, 5.9%; Lake County, 6.9%; and Solano County, 7.2%. Eyler did not provide current employment data on the other North Bay counties during his presentation.

Hotels, restaurants and event centers are seen as the major factors holding back the state’s economy, but he expects to see these sectors increase recovery momentum starting this summer.

To support his view of a relatively quick recovery, he noted the state Economic Development Department reports it took 71 months to recover the jobs lost in the Great Recession, but California is very close to fully recovering pre-COVID jobs after approximately 17 months, with the lifting of pandemic restrictions June 15.

Eyler acknowledged that inflation is rising. He said gas prices – traditionally not considered part of the core inflation metrics – is the primary culprit but only temporary. While inflation is rising, it was expected with sustained gas price increases pushing total inflation towards the core price index defined as prices paid by consumers for goods and services, he said.

Housing prices are another major driver for regional inflation. Eyler admonished investors to watch bond markets for rising risks and market reactions. The Federal Open Market Committee, the monetary policymaking body of the Federal Reserve System, makes key decisions about interest rates and the growth of the U.S. money supply.

The committee has been striving to keep inflation at the 2% level, but inflation had risen to almost 5% of May 31.

Marin nearly regains jobs lost in the pandemic

As for jobs recovery in Marin County, Eyler said it took 58 months to recover jobs lost in the Great Recession, but this county is already close to being back to its January 2020 employment level. For those who live in Marin, however, he pointed out that this total needs to continue to rebound to ensure local and regional economic recovery.

Another key factor that can delay recovery, he said, is the size of the civilian labor force compared with civilian employment for a county such as Marin compared with all of California.

From May 2019 to May 2021, the Marin civilian labor force was down 7,200 (5.2%) and civilian employment in the county was off by 10,000 (7.4%), according to the state Employment Development Department. At the same time, the civilian labor force statewide lost 293,000 workers (1.5%), and civilian employment fell to 1,014,900 (5.5%).

The May unemployment rate in California was 7.5%.

“The comparison to May 2019 reminds us that recession means lost growth from a benchmark date two years ago,” Eyler added.

Key changes in hiring

When studying labor force dynamics for Marin County and California from April 2020 to May 2021, there a been sustained change in the number of local and statewide residents available for work. Eyler said there are four key reasons why workers leave the labor force:

  1. Retirements
  2. People shifting careers and/or seeking education
  3. Residents leaving the area (now counted somewhere else)
  4. Those who choose to leave due to discouragement or domestic needs, such as childcare.

Another way at looking at Marin County jobs is to observe the percentage changes between May 2019 and May of this year for 14 groups of employers.

During this time frame, the single largest job positive-growth category was in total farm employment (33.3%), followed by transportation and warehousing (7.7%) and construction (0.3%), according to EDD figures Eyler cited.

At the same time, major job losses were seen in the leisure and hospitality industry sector (-22.8%), for other services (-15.8%), government (-10.6%), in education and health services (-8.9%), and total non-farm employment (-7.3%).

“Lifting restrictions and rising travel levels will likely help increase leisure and hospitality employment,” Eyler said. “The jobs lost at Marin County employers are a mix of local residents and workers coming from outside the county.”

While there are definite signs of economic recovery, several questions remain, such as how long it will take to recover jobs lost during the pandemic.

The April jobs report from the U.S. Department of Labor revealed some 8.2 million U.S. jobs have yet to be recovered. Eyler said there should be some economic “scarring” that may take a couple of years to fully recover in the leisure and hospitality sector, for example and retail may struggle to recover in its current form. However, a number of those displaced in these sectors may be enticed to come back if offered higher hourly pay.

Some people have indicated an unwillingness to come back to work until school starts and/or if everyone is vaccinated. Eyler noted that once schools reopen for onsite learning, along with childcare options, “we should see these reasons for not returning fade quickly”.

A larger number of women than men left the workforce during the past 15 months, with the majority of job gains in April going to men. Again, Eyler observed that “the continuation of few options for school and childcare outside the home continue to force some marginal decisions”.

He said that there are several classic scenarios for people during a recession, such as large numbers of people seriously considering changing jobs (66% in a Pew Research Center study), those wishing to go back to school to continue their education, and affluent Americans electing to retire early.

Others may be waiting for jobs to be more stable and COVID-proof (with everyone vaccinated) as well as those taking time off to travel and to spend more time with family. Eyler indicated some of these reasons represent “short-term phenomena, but reality is some jobs just won’t come back forcing workers to reassess their career paths and seek different options and locations”.

At the same time, the manufacturing and construction sectors need workers, but are not attracting many. Case in point, the April jobs report showed U.S. manufacturing shed another 18,000 jobs, added to the 515,000 jobs lost since February 2020, and construction hiring is flat.

This is due in part to the skyrocketing cost of lumber and building supplies along with disruptions and delays in the supply chain that interfere with project completion, as well as due to the closure of some plants due to the global pandemic that have not yet returned to full operation.

As pockets of labor shortage areas continue to emerge across the U.S., some areas are moving into positive territory. According to Eyler, “with wages not rising, this trend may continue toward places with a lower cost of living for the time being”. He said California may see some re-migration, especially if there are returns to urban offices in 2022.

Another factor is the fear among some against taking vaccines that are not fully approved by the FDA, but are being given on an emergency use basis, along with fear of a new wave due to the Delta variant.

Eyler’s response: “This is probably the No. 1 issue going toward the end of the year that would upset most markets, especially if there is a repeat of wave 1 or 2, or an average of the two in terms of Delta cases and hospitalizations,” Eyler said. “We will have to wait and see.”

In summary, Eyler said “the forecasts are good, and we need to keep from having to close down again, based on any (COVID-19) variants. The combination of stimulus, low interest rates and jobs recovery seem to be working across the North Bay.”

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