By Manfred W. Keil and Robert A. Kleinhenz | Inland Empire Economic Partnership
In Samuel Becket’s play “Waiting for Godot”, each act ends with a messenger boy announcing that Godot is not coming today so the two main characters will have to wait for the next day. Similarly, many of us have been asking when the post-COVID-19 economic expansion will finally arrive, or if we must wait yet another month for it to get underway, at least here in Southern California.
The previous 10-year expansion ended in February 2020 with the pandemic shutdown that began the following month. We all remember when we first heard news of the shutdown: It is an event that sticks out in one’s mind like so many other major events of our time.
The shutdown triggered an unprecedented economic downturn that lasted nationally until the end of April but extended into May in some regions. A surge in hiring and economic activity starting in May 2020 fueled hopes of a quick recovery, but to this day we have not returned to either pre-recession output or employment levels. Keep in mind that full recovery from economic downturns takes years, not months. For example, it was not until 2011 when output returned to pre-recession levels after the Great Recession, which began in 2008. As is typically the case, employment recovery took even longer, not fully back on track until 2014.
Given current circumstances, notably the pace of coronavirus vaccinations and recent reports on the national economy, we now expect that output will fully recover this summer and employment will be fully on the mend by mid-2022. Similarly, the last two California Employment Development Department (EDD) reports provided evidence that the economies of the state and the Inland Empire accelerated sharply from the anemic growth seen at the end of 2020. The economy is shifting into a higher gear. In other words, the “wait” is over!
How fast is the Inland Empire rebounding?
The best evidence comes from the so-called establishment survey (“Current Employment Statistics”) based on responses from 80,000 California businesses. The February gain of 21,800 positions in the Inland Empire was the largest monthly gain for that month in over 20 years. This was followed by an increase of 12,500 positions in March, which was the single largest March increase in employment in this millennium. Large monthly gains are virtually guaranteed in the coming months. In particular, with half or more of all California adults getting vaccinated, widespread resumption of activity in the hardest hit industries is around the corner, notably full-service restaurants, arts and entertainment activities, and tourism. With these observations in mind, our forecast calls for output growth in excess of 7% for this year, the fastest growth pace since 1984. Other forecasters have recently converged to our predictions in updates as well.
Despite all this good news, it is important to keep perspective on the current situation. The Inland Empire still has only recovered 65% of the jobs lost from February to April 2020. We still have to find the remaining 35%. That means we continue to be at 95% of the job levels we had in February 2020. The region lost roughly 219,000 jobs and has regained almost 142,000 so far. Even if we repeated the record-breaking job gains seen since February, which is not likely, it would take us several months to get back to where we started from before the recession set in. And we still must play catch-up to achieve job levels that would have been realized if the pandemic had not occurred.
It is a myth, often repeated in the financial press, that the U.S. economy is in a recession if we have two quarters of negative growth. If that were the case, there would not have been a dot-com recession at the beginning of the century and the Great Recession would have started in August 2008 rather than January 2008, since there was a small amount of positive growth in the second quarter of 2008. Also, recessions are dated by month, not by quarter (see the start of the current recession).
So, when did the Coronavirus recession end?
It is tempting to say either April or May of 2020, which would make it historically the shortest recession on record. To this day, the dating committee of the NBER has not made an announcement. The committee has taken its time in the past, and it always considers a host of factors when it establishes start dates and end dates for recessions. Looking at the sluggish recovery in jobs, we would not be surprised if the NBER declared that the current recession ended in either January or February 2021, which would make February or March 2021 the first month of the new expansion. This would signal how strong the recovery was over the last two months; alternatively, the committee could go with the earlier reversal of the initial decline in May 2020.
Regardless of the official end date of the pandemic downturn, recent evidence points to an acceleration of economic activity in the coming months as reopening occurs on a widespread scale even as we continue to be vigilant in containing the virus.
The Inland Empire Economic Partnership’s mission is to help create a regional voice for business and quality of life in Riverside and San Bernardino counties. Its membership includes organizations in the private and public sector.
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April 29, 2021 at 10:32PM
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