It will be a long, tough slog, but Orange County is starting to climb out of the deep recession.
“We’re turning the corner and we’re going to see positive growth rates starting in June,” said Mira Farka, an economist at California State University-Fullerton.
She told the Business Journal on May 29 that local healthcare, construction and manufacturing in OC will get back on track “faster than the national recovery” from the economic crisis caused by the coronavirus shutdowns.
“Leisure and hospitality will come back much slower,” Farka said (see story, page 1).
“That would probably be the weakest sector coming back” due to various restrictions and a generally slower reopening in California compared to other large states, she said.
Farka, an associate economics professor at CSUF and co-director of its Woods Center for Economic Analysis and Forecasting, spoke prior to last week’s surprising jobs report. The U.S. Labor Department last Friday said that the country added 2.5 million jobs last month and the unemployment rate fell to 13.3%. The report sent stock markets higher and led to increased optimism about the recovery.
Looking to 2022?
Farka cautioned, “we don’t have forecasts beyond 2021 but my guess is to get back to where we were in February 2020 it will probably take until at least the end of 2022 and, in some sectors, probably even longer.”
Most estimates have been projecting the crisis will weigh on the U.S. economy for years to come.
One of Farka’s concerns is the performance of the stock market starting toward the end of the year, if the recovery isn’t as strong as baby boomers expect for their retirement.
Due to the sudden nature of the COVID-19 crisis, Farka had to rely on unorthodox ways to gauge the state of the economy including “high-frequency data.”
Farka presented an updated report late last month in an online program sponsored by the OC Forum (see key figures, this page) as she predicted “tough times ahead.”
The Orange County unemployment rate will average 8.2% this year and 6% in 2021, Farka said.
It stood at around 3.7% as of mid-March.
The latest unemployment figures are an increase over the numbers that she and her colleague Anil Puri forecast in April.
“We do expect the total estimated job losses for Orange County to come to about 340,000 when this is all said and done,” Farka said.
The job loss figure translates to an average unemployment rate of about 12.1% for the current quarter in Orange County, factoring in the number of jobs lost and the estimated 94,300 people who have left the local labor force since the onset of the recession and aren’t actively seeking work anymore, according to Farka.
Prior to last Friday’s jobs report, she expected the May report to show further job losses and a further reduction in the labor force, which could push the monthly OC jobless rate to a peak of 19.2% from the 13.8% in April.
Farka emphasized that the full economic picture is still developing, and much will depend on future data.
She said a lot of the layoffs are temporary, pointing out that in construction for example, many workers have been furloughed rather than permanently let go.
She predicted a vigorous comeback for construction in OC.
Home sales in OC will rebound strongly in the third quarter from a 30.6% drop in sales in April, according to Farka.
“The crisis has not quite hit the housing market—at least not home prices yet” in much of the Southland, said Farka, who added that the Orange County housing market should be “fairly insulated.”
Irvine-based TRI Pointe Group Inc. (NYSE: TPH), OC’s largest public builder, has seen similar trends across its companywide portfolio.
Net new home for the homebuilder orders in April fell 54% year-over-year, but in May, new home orders were only down 5% compared to year-ago levels.
“We have seen demand return in substantially all of our markets, including in California, where May 2020 orders increased 7% compared to the prior-year period,” TRI Pointe Chief Executive Doug Bauer said last week.
“Overall, Orange County is still in much stronger shape even in terms of the labor market, compared to Los Angeles,” Farka said. “L.A. was completely decimated from the pandemic.”
Farka also sees advantages in Orange County’s “larger share of higher educated workforce,” as well as its greater ability to work remotely.
“By and large Orange County’s economy is fairly diversified, but we have this big giant employer, Disney,” she said. The Walt Disney Co. generates 57,000 jobs in Orange County under normal times, taking into account direct employees, as well as contractors and others who rely on the company for their livelihood, according to CSUF data from last year.
“It’s a blessing on one hand, but when something like the pandemic which never happened before comes along obviously then you understand how being so dependent on one large employer is risky.”
Disneyland in Anaheim is still closed with no firm date for its reopening.
University of California-Irvine Economics Professor Amihai Glazer said OC has an advantage in being less densely populated than Los Angeles County.
“Businesses may open faster in Orange County,” Glazer told the Business Journal on May 26, adding that there is “little reliance on public transit” where viruses can easily spread.
“International trade is big in Southern California, including Orange County, and that may hurt,” according to Glazer.
A lot of the recovery pace will depend on getting a vaccine and treatment in place, he said.
Joe Brusuelas, chief economist at accounting, tax and consulting firm RSM US LLP, said that in many respects there will be a “multi-speed” recovery from the recession in Orange County, “somewhat differentiated from the rest of California and definitely the rest of the United States.”
“Telecommunications, media, technology along with anything having to do with the biopharmaceutical industry is poised to lead out of the recovery,” said Brusuelas, who grew up in Southern California.
Low interests will make it “a good time to be building homes, selling homes” while car sales will eventually help as well.
Brusuelas last month predicted a “slow and frustratingly elongated recovery” from the current recession.
“I don’t expect we’ll be in expansion until mid-decade.”
340,000 OC Job Losses,
but Turnaround Predicted
Here are some of the key points from the latest OC economic outlook prepared by Mira Farka, an associate professor of economics at California State University-Fullerton and co-director of its Woods Center for Economic Analysis and Forecasting:
• The Orange County unemployment rate will average 8.2% this year and 6% in 2021, higher than Fullerton economists’ April prediction of 7% and 5.3%, respectively.
• Leisure and hospitality jobs will drop 44%, retail down 19% and healthcare dipping 14%.
• OC job losses about 340,000 when all is said and done.
• Home sales were down 30.6% in April in OC; big pickup expected.
• Home prices in OC rose 4.4% in April, year-over-year, representing a “little bit of deceleration” in the growth.
• Construction jobs will come back “pretty vigorously” especially in Orange County.