Forecast: HQ economy will thrive but not boom amid COVID-19
While waiting for a big rebound of COVID where jobs are numerous and prices stable? Be patient. The economy is recovering, but a little more gradually than expected, according to a new economic forecast released on Wednesday.
“In June, it was noted that the COVID-19 pandemic continued to cast a shadow over the California forecast. Three months later, the shadow lingers, ”says the latest economic forecast from UCLA Anderson School of Management.
The outlook is cautiously optimistic. As people get vaccinated and the state continues to reopen, “a clearer but still uncertain picture emerges,” the report said.
The attitude of consumers is an important key to any economic recovery. The more convinced they are that things are getting better, the more they are willing to spend.
The level of consumer confidence is not yet at the desired level. “The memory of the Delta variant will continue to scare consumers away, creating a slower return to past consumer behavior than expected,” said Jerry Nickelsburg, director of forecasting for the Anderson School.
California’s unemployment rate has been stubbornly high, and its rate of 7.5% in August was the second highest state rate in the country, behind Nevada. While California’s rate is expected to drop, it will be some time before it matches the national rate, which was 5.2% in August.
“The unemployment rate will go down. Because of the Delta variant, it will go down more slowly than we thought, ”Nickelsburg told the Sacramento Bee in an interview.
Low COVID rate
Yet California’s COVID case rate per 100,000 people is by far the lowest in the country. In the seven days ending Monday, the state recorded 42.2 cases per 100,000 people, according to data from the Centers for Disease Control.
Only Connecticut, at 68.1, fell below 100 among the 50 states. Alaska tops the list with 784.5.
One of the reasons for the large number of unemployed in California is that the state depends more than most on the tourism and hospitality industries, and these industries continue to be affected by a combination of closed or restricted places and virtually no international tourists.
Lack of consumer confidence is also hurting these industries. People are more reluctant to dine out, Nickelsburg said, or to take “stays”.
The forecast called for a state average unemployment rate of 6.7% this winter, then a steady decline until it hits what economists call full employment – an average rate of 4.4% – in 2023. But forecasts call for a national rate that year to average 3.7%.
Other state economists have similar perspectives.
Remember, said Song Won Sohn, professor of economics at Loyola Marymount University, “California has not fully recovered from the pandemic.”
Mark Schniepp, director of economic forecasts for California in Santa Barbara, added: “California will evolve in tandem with the United States. We might even see it restore proportionately more jobs than the United States next year, but since it has suffered more trauma, the induced job losses are unlikely to be restored until mid 2023.
Cost of living in California
A threat beyond COVID could cripple growth, and those are the prices. The National Consumer Price Index, which measures a wide variety of prices, has increased at its highest rate in 13 years.
In California, prices rose an average of 1.8% last year, and Anderson’s forecast predicted they would rise 4.2% this year and again next year, to drop to 2.9. % in 2023.
One problem is supply and demand. When the COVID pandemic began in March 2020, people cut back on travel, dining, entertainment and elective medical procedures, Nickelsburg said.
“The realization that we will probably be spending more time at home in the long run has led people to invest more in their homes, in renovations and in furnishing the home,” he said.
This is not typical consumer behavior and supply chains were not ready. This has resulted in higher prices as demand is up and supplies are down.
If supply becomes abundant – as many economists predict – prices should stabilize.
Schniepp called the current situation a “near-pandemic environment”, noting “We cannot be sure what impact they will have on consumer demand, business revenues or the economy in general.”
Another uncertainty concerns interest rates. They have remained at historically low levels for years, but last week the Federal Reserve indicated it may look to hike rates sooner than expected, but likely not for another year.
However, rates should remain historically low. Nickelsburg saw such increases as having little effect on the overall economy.