10 pandemic puzzles Southern California’s economy must solve – Daily News

on Mar14
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Southern California’s pandemic-scarred economy created one certainty: Back to normal is impossible.

The pain has been steep. Unemployment soared. Businesses decimated. Rents unpaid. Supply chains disrupted.

Meanwhile, folks adapted. Work from home is a new norm. Grocery workers are heroes. Homebuying is hot. And food delivery is expected.

The region’s economy endured some of the nation’s harshest “stay at home” measures to battle the spread of coronavirus. In its wake, the four-county area was 749,600 jobs short of pre-pandemic levels. But as the second year of this era begins, the virus seems on the wane with vaccines promising to curb the number of potential victims.

Just don’t bet on the same-old, same-old. Too many habits have been permanently altered in life, no less in the economy. Few paths lead to any replica of the good ol’ days of, say, 2019.

Now, crystal ball predictions of the frenetic Southern California economy are rarely easy, and forecasting 2021 is as complex as a 3-D puzzle.

“On a scale from 1 to 10, 10 being the most difficult, I’d rate it a 376.59,” says professor Barbara Sirotnik, who teaches forecasting at Cal State San Bernardino. “There are just too many unknowns. The economic landscape is constantly shifting under our feet. But what would be the challenge in forecasting a stable system?”

The virus and its treatment remain the top economic concerns. Losses, gains and rebound prospects are not uniform by industry or geography. Plus, there’s a curious dilemma in that “positive” business trends can bring headaches.

For example, ponder recent hirings, a modest return to office work and reopening schools. These actions added traffic, boosting demand and prices for gasoline above 2020 levels.

Looking ahead, here are 10 questions Southern California’s economy faces.

1. Is there an employment cure?

Past pain: Roughly 1-in-8 Southern California lost jobs have not been replaced.

Probable path: The economic downturn disproportionally hurt those who could least afford a job loss — the lower-income worker.

Progress in the COVID-19 battle will reopen many shuttered or restricted workplaces. Entertainment venues and related businesses will get to host limited visitors come April.

Some of the financial pain was dulled by stimulus checks, added unemployment benefits and small business grants. A complete rebound, though, won’t come soon.

“California reducing unemployment will be longer than the nation because this state has lagged in lifting business restrictions and this is assumed to remain for the rest of this year,” says economist Mark Schniepp.

Puzzle: How can low-wage workers boost the economy when they’re looking for new jobs to dig out from deep financial challenges?

2. How will workers fare?

Past pain: Roughly 90% of Southern California’s workforce kept its jobs.

Probable path: “Stress levels should decline for the employed if those levels are not already low,” Schniepp says.

The downturn was less financially challenging for “essential” workers or those who could work remotely. Work was hardly simple. Some jobs had big health risks. Others required juggling new technology and family chores at home.

Curiously, work was rewarding: Southern California pay rose 3.35% last year — a quarter-point more than the previous five years.

Puzzle: How will the fully employed use their increased savings and wealth?

3. Will jobs remain remote?

Past pain: As many folks love the new workplace flexibility as those who can’t wait to be back in an office.

Probable path: “Stay at home” mandates pushed remote work policies from rare to necessary. This revolution did not simply rattle day-to-day corporate life, it created economic shockwaves beyond company culture.

Office landlords saw businesses give back rented space. A redefined rush hour upended the finances of mass transit, gas merchants and auto dealers. Meanwhile, makers of online meeting technology and home-office supplies were overrun with orders.

More normal workdays will reverse part of these storylines. Traffic expert Bob Pishue of INRIX notes, “Downtown travel growth will continue to lag more suburban and rural areas.”

Puzzle: If widespread work-from-home policies are here to stay, why are real estate giant Don Bren and other developers building more office space everywhere from Irvine to West Los Angeles?

4. Who’ll cure us?

Past pain: Despite a rising need for healthcare amid the pandemic, Southern California employment in the medical and social-service industries fell 4%. Much of those job losses can be tied to non-emergency treatment being put off.

Probable path: The coronavirus exposed an ill-prepared healthcare system and a glaring lack of medical workers. Those in the field risked their own health in the battle.

“We had a shortage before the pandemic,”  said Dr. Alpesh Amin, chair of UC Irvine’s Department of Medicine. “Then we had a decrease in numbers because workers got sick or members of their family got sick.”

In 2021, stress for workers should lower as the pandemic slam to healthcare subsidies.

And there will be lots of talk about boosting healthcare resources. But significant investment? No time soon.

Puzzle: Ridiculously harrowing work forced some workers to quit. Will it scare others from entering the labor pool?

5. Can we have fun?

Past pain: The region lost nearly half of its jobs in tourism, entertainment and hotels. “Stay at home” was really bad news for hospitality businesses.

Probable path: Modest relief is expected as strict business limitations loosen year-long closures.

These “fun” businesses would have suffered nonetheless as much of the public has avoided crowds. Improving pandemic health metrics should get amusement hubs, theaters, and ballparks significantly reopened by late 2021.

Hotel analyst Alan Reay sees renewed urges for travel creating a quick recovery for coastal tourism. But for business-oriented destinations, “a much longer road back, likely to take at least three years.”

Puzzle: How many virus-phobic consumers will continue to curtail their entertainment spending?

6. Will we dine out?

Past pain: The restaurant industry lost one-third of its jobs.

Probable path: Dining out was on a huge upswing in the previous decade’s strong economy. And the best that can be said about what happened next is that new tricks were learned —  takeout, curbside pickup, delivery and “family-style” options.

Fast food is already recovering better than sit-down eateries. The fate of traditional restaurants is tied to how quickly indoor dining is restarted — and how widely it’s accepted.

Drive-throughs provide a key advantage, says Patrick Wade of the CBRE real estate brokerage. “We have seen many restaurants that used to only offer dining-in now rolling out drive-throughs, such as Chipotle and Habit Burger.”

On top of sales challenges, restauranteurs’ costs jumped. Protective gear had to be bought, safer dining areas constructed and delivery services paid for.

Puzzle: Are more home-cooked meals part of the new normal or a pandemic chore to be quickly shed?

7. Next for shopping?

Past pain: Retail employment is near pre-pandemic levels but conditions have favored certain larger players.

Probable path: Locals with cash who’ve been spending will likely spend more but “where” is the question.

Online shopping grabbed an even larger slice of retail’s pie and that won’t return to local shopping centers. When folks do go shopping, they’ll likely focus on the basics sold by major chains. Still, innovative smaller merchants fight on.

John Riddle, CEO of Howard’s Appliances, says retailing is now “meet the customer where they want to be met.” Riddle points to his chain’s “playgrounds” where shoppers can “truly experience new technology for the home.”

Few modern tactics will save retailing relics like Sears and second-tier malls that were crushed by COVID-19.

Puzzle: What becomes of acres of dead shopping centers?

8. Will homebuying stay hot?

Past pain? House hunters couldn’t find a bargain and they won’t find one now. The year started with Southern California’s median sales price up 13% from January 2020.

Probable path: Perhaps the biggest economic surprise was how the coronavirus ignited a homebuying binge.

Historically low mortgage rates allowed folks with solid jobs to seek bigger living spaces. Remote work made inland communities hot property. Meanwhile, most owners aren’t in a selling mood and builders can’t keep up the pace. So demand exceeds supply.

“The feeding frenzy is likely to last throughout the first half,” says Ali Wolf, an economist at Zonda. “Toward the end of the year, slightly higher mortgage rates, an affordability crunch, and more people returning to ‘normal life’ will bring housing demand back to earth.”

Puzzle: If the masses return to the office, will distant regions remain popular with house hunters?

9. What about landlords?

Past pain? Pandemic angst was geographically divided with pain seen by the coast and profits inland.

Workers hardest hit by job losses were likely tenants. Government edicts prevented most evictions, making rent collection tough for landlords. And well-to-do tenants decided to become homeowners.

Result? Stagnant or falling rents in Los Angeles and Orange counties.

Probable path: “With the for-sale market so supply-constrained right now — and consequently, expensive — rental demand should remain high,” says analyst Rob Warnock of Apartment List. “Rent collection will improve with time.”

Puzzle: Will enthusiasm drop for much-needed apartment construction?

10. Do they deliver?

Past pain: Think house hunting’s crazy? Go shop for warehouse space. Southern California industrial rents jumped 6% last year in a market that’s 97% occupied.

Probable path: Yes, we’ll cherish dining out or certain shopping excursions. Yet it’s too easy to click and ship.

Business owners are struggling with delivery’s growing clout. How to manage costs? How to set expectations? Where to store all the stuff to meet we-need-it-yesterday demand — all at a reasonable expense.

Warehouse demand is “not a fad, it’s just math,” says Louis Tomaselli of the JLL real estate brokerage. “All of the retail store floors that we don’t need anymore require new industrial warehouse floors as a replacement.”

Puzzle: Will events like the toilet paper shortage change “inventory” thinking: How much stockpiling — a costly endeavor — becomes normal?

Jonathan Lansner is a business columnist for the Southern California News Group. He can be reached at jlansner@scng.com. 

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