05 Apr Economic Damage and the Outlook for the California Economy in Pandemic
by Mark Schniepp
April 3, 2020
In February while we were assessing the early economic indicators for the U.S. and California it became clear that the momentum from 2019 was pushing into 2020. Moreover, momentum was actually accelerating.
We thought the forecast for 2020 would be another year similar to 2019 when employment reached record highs, unemployment fell to record lows, trade was improving, manufacturing output was growing, and general economic sentiment by Americans was near historic levels of optimism.
Well, that condition rapidly turned on a dime.
A National Emergency was declared by the Trump Administration on March 13. By March 15, Governor Newsom ordered shelter-in-place for the Bay Area, and 4 days later, for the remainder of the state. Everything closed and events were called off. Not just a few events, all of them. Only grocery stores and stores selling critical products to households and to workers who work from home remain open. Little else.
Many grocery items are intermittently scarce, except toilet paper which is always scarce. There is plenty of booze and oddly I can always get tomatoes but not garlic. Why is that? Pasta and rice and flour sell out quickly. More delivery trucks and larger loads are needed to supply grocery stores now that everyone is buying nearly all of their food there.
The unemployment rate (that we estimate for the latter part of March) surged and is now higher than during the Great Recession of 2008-2009. Five million jobs in California are at risk of being lost. Many of these jobs will remain on company payrolls and/or workers will be furloughed without pay, but an unknown number will be terminated.
So far, over one million workers have filed for unemployment benefits. These will remain elevated for the next week or two because there is likely a backlog of filings.
The rescue program passed by Congress last week will prevent many potential layoffs because it provides businesses with payroll relief loans for the next 2 ½ months. And down the road, the loans may be forgiven.
Airline travel has declined 74 percent. Flights through LAX have been reduced from 1,675 a week in mid-January to 431 this week.
Sales of new vehicles plunged in March, off 40 percent from sales in February. With most car dealers closed, sales of new automobiles can principally occur online, with little chance of kicking the tires before hand.