We can get the national analysis out of the way: There was a higher than expected increase in the employment numbers (275,000) while the even higher initially released January numbers were revised downwards to more reasonable levels (229,000). Yes, the unemployment rate did increase from 3.7% to 3.9%, but that was due to healthy employment growth being outpaced by an even larger increase in the labor force.

Since then, the inflation numbers have also been published, and while they did not improve further and by the magnitude we’d hoped for, the U.S. economy continues to be on a path for a soft landing (reducing inflation rates to 2% without creating a recession).

This is important, because the Federal Reserve would be less likely to lower interest rates during summer if the job market was as hot as initially estimated and inflation remains sticky above the 2% target. The central bank left interest rates unchanged after its meeting last week, but indicated it is close to start lowering the interest rates as policy makers become confident that “it will be appropriate to dial back.” Chairman Jerome Powell said they were “not far from it.” As the UCLA Anderson Forecast put it in its most recent report, we are on a path to normalcy.

Now let us focus on our state and region. For the Riverside-San Bernardino-Ontario Metropolitan Statistical Area, some of the annual revisions were substantial. In the Inland Empire, the Logistics industry lost significantly more jobs (some 5,000 depending on which month you focus on) since last summer than originally assumed and shows a steeper downward trend. On the other hand, Education and Health Services has gained more jobs than previously thought, roughly 10,000 more and the numbers are trending upward, confirming it as the sector with the largest share of labor in the Inland Empire.

The headline news for the Inland Empire is that the unemployment rate jumped up by half percentage points, increasing significantly from 5.0% to 5.5%. Since the Inland Empire’s economy is often described as “first in, last out,” shall we take this as the first sign of the national economy tanking after all, resulting in a “hard landing” (decrease in inflation coinciding with a recession)?

The initially bleak picture is simply an artifact of the data, generated by regularly occurring seasonal patterns. Without getting too technical, we will try to convince you that you should look at seasonally adjusted data rather than the raw data from the EDD. While for some months the difference is negligible, in January it is particularly high, since there are layoffs every year due to the post-holiday season. It is not surprising that the largest raw data (non-seasonally adjusted) employment losses for the Inland Empire came in Retail Trade, Logistics, and Leisure and Hospitality. Filtering out these effects is important since they give a misleading picture of the underlying economy. Total employment reported did not go down 32,300 (which would represent an alarming 2%); instead, it went up by 4,850.

The increase in employment reported by households (+9,100) aligned with the increase in establishment employment (+4,850). Residency measured employment increased by more than what establishments reported. This is probably due to commuters, most of whom work in the coastal areas. The employment status of these commuters is reported by households in the region, not by establishments. This means that significant job growth among commuters could explain the difference for January.

Let us get more specific. Compared to the bleak picture painted by the raw establishment data (decreases of -8,200 in Retail Trade, -7,400 in Logistics, -6,500 in Professional and Business Services, and -3,700 in Leisure and Hospitality), the numbers we get after accounting for seasonal patterns are more positive. The biggest decrease was seen in Professional and Business Services (almost -1,200), at only roughly a fifth of what non-seasonally adjusted data indicated. For Retail Trade (-500), Logistics (+250), and Leisure and Hospitality (-700) numbers also look less worrisome. Bottom line: Do not make major decisions based on non-seasonally adjusted data.

Applying standard statistical techniques to remove seasonal regularities results in the (seasonally adjusted) unemployment rate actually falling by 0.1 percentage points from 5.7% to 5.6% in the Inland Empire.

The change came in the healthiest way possible: through a simultaneous increase in employment and labor force, the former outpacing the latter (+9,100 and +6,200, respectively). After six consecutive months of increases in the civilian unemployment rate, this is encouraging. The result holds despite the fact we only observed significant employment increases during three months in 2023.

The Inland Empire will need more time to recover from the very concerning decreases of 12,800 for the labor force and 13,600 for employment observed between November and December. Despite this, the Inland Empire continues to be the poster child of the economic recovery from the COVID-19 recession,. While we will continue to see some structural adjustment between the industries of the region, we are on a positive path as far as the economy is concerned.

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Manfred Keil and Arlo Jay | Contributors

The latest employment report released by the California Employment Development Department contains labor market information on the 58 counties and 26 Metropolitan Statistical Areas.

The report does not contain much positive news for the Inland Empire MSA of Riverside and San Bernardino counties. The raw data, which does not take into account regularly occurring seasonal fluctuations, saw a slight 0.1 percentage point increase in the unemployment rate, but this was for December, a month during which seasonal employment should increase every year because of the holidays.

Once we remove the regularly occurring employment fluctuations, the Inland Empire unemployment rate increases to 5.7%, up from 5.4% in November, which is a large jump in terms of month-to-month changes. It means that while we missed a national recession in 2023, we are not out of the danger zone yet.

Unfortunately there will be no report in mid-February due to annual revisions of the data, and we cannot tell before mid-March what the underlying forces are. While there are many signs of a soft landing, don’t unbuckle your seatbelts yet. Time to look at the big picture The economic expansion between the end of the Great Recession in June 2009 and the beginning of the coronavirus downturn in March 2020 was the longest period of uninterrupted economic growth in the U.S., post World War II. It lasted 128 months.

The initial recovery was not spectacular: it took five years (July 2014) for employment levels to return to prerecession levels. Workers who lost jobs during the 2008-2009 recession were primarily working in manufacturing and construction, and did not regain employment for quite some time.

The recoveries that followed the Great Recession and the coronavirus downturn were uneven across industries and regions. Since our expertise is on the Inland Empire and the role it plays in Southern California, we want to focus on labor market behavior in Riverside and San Bernardino counties. Let’s start with the Great Recession, and then compare that situation to the more recent coronavirus episode. The Inland Empire had a “first in, last out” experience since we were one of the epicenters of the housing bust.

With hindsight, we should have seen the oncoming train since housing prices started to decline long before the start of the recession in December 2007. Employment in construction and manufacturing peaked in June 2006, a year before the peak in total employment. Unemployment rates in the Inland Empire reached 14.2% in November of 2010. This was worse than the unemployment rate for California (12.6%), and much worse than the national rate (10.0%). Subsequently we saw a bifurcated recovery, where coastal regions performed significantly better than inland areas across the state.

What about the coronavirus recession and its recovery? It is well known that the most affected industrial sector was Leisure and Hospitality. Hence geographical areas that had a higher share of employment in that sector suffered more than those that had a lower share: over 50% of the variation in the initial unemployment rate increase across the Metropolitan Statistical Areas can be explained by the difference in labor shares for Leisure and Hospitality. While the Inland Empire peaked at 15.2% in May of 2020, Los Angeles County reached 19% and even California as a whole showed a 16.1% rate.

The Inland Empire experienced a faster recovery toward unemployment rate levels seen at the end of the previous expansion (February 2020). Logistics played a major role during the recovery. In the Inland Empire, it became the second largest employer, since we are the “warehouse capital of the world” according to The Economist magazine. By December 2021, we saw extraordinarily low levels of unemployment rates in the Inland Empire, especially after seasonally adjusting the data: 3.2% (June 2022).

Since then, economic activity in the Inland Empire has slowed significantly. We do not attribute this to the early sign of a national recession, but instead to the adjustment by consumers from shifting expenditure patterns away from consumer goods and back toward services. At face value, the impact of this transition struck the Inland Empire more than other regions in Southern California and indeed both the state and the nation. Since February 2020, the seasonally adjusted unemployment rate in the Inland Empire has increased by 1.5 percentage points, reaching 5.7%. It is thereby significantly above the U.S. figure (3.7%) and higher than the state’s 4.9%. The Inland Empire unemployment rate is also significantly higher than that of Orange County (4.3%), Ventura County (5.0%), and Los Angeles County (5.6%).

This does not sound good at first. But the unemployment rate is made up of two underlying variables: the labor force and employment. The unemployment rate will change by the amount the labor force growth outpaces employment growth. For example, if the labor force does not grow at all but employment increases by 0.3 percentage points, the unemployment rate falls by 0.3 percentage points. Now comes a less intuitive example: employment increases, say by 0.1% but the labor force attracts more people, not all of which find a job right away. Let’s say this amounts to 0.3 percentage points.

Here the unemployment rate will increase by 0.2 percentage points despite the fact that employment grew. We are trying to torture you with a bit of algebra for a reason, it is relevant to understand the current situation in the region’s labor market. Yes, we have the highest unemployment rate, but in all other Southern California areas, both the labor force and employment have shrunk since February 2020. The Inland Empire is the only region in Southern California where employment and the labor force have actually grown — this is a healthy situation.

Unfortunately, the labor force grew faster than employment (it was up by 2.4% while employment increased by 0.9%), and hence our unemployment rate is 1.5 percentage points higher. If people had not joined the labor force in such large numbers, the unemployment rate for the Inland Empire would be roughly a percentage point below what it was in February 2020.

This suggests that we should worry less about our relatively high unemployment rate. What about the other Southern California areas? Not so good. Los Angeles County did worse — its labor force shrank by 6.4% since February 2020, roughly 1 out of 20 workers gone. Whether this is due to out net migration to another state or just a migration to the Inland Empire, which becomes more attractive with more work being done remotely, needs to be seen.

The county also has an older worker population so this may partly be due to retirements. Employment in Los Angeles County also fell by 6.4% leading to a relatively small increase in its unemployment rate of 0.5 percentage points. Orange County is another loser: its labor force shrank by 1.8% and its employment by 3.1%. Similar numbers hold for Ventura County. The Inland Empire is doing relatively well economically and we are experiencing a bifurcated recovery.

Compared to a year ago, we have the second highest employment growth among major MSAs in the state, including Silicon Valley and San Francisco. The Inland Empire used to be the loser in the recovery, it is now the winner. Behind the initially discouraging unemployment rate are a labor force and employment that continue to grow as the rest of Southern California experiences shrinkage in both.

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CNS | Contributed

Inland Empire business activity rebounded in the most recent quarter, with increasing slack in the residential real estate market offset by growth in commercial development, UC Riverside economists said Thursday.

The UCR School of Business’ Center for Economic Forecasting & Development released its quarterly Inland Empire Business Activity Index, showing that the regional economy experienced a 2.8% annualized growth rate during the third quarter of 2022 — the most recent data available — a turnaround from the marginal 1.6% expansion in the second quarter.

The latest rate was comparable to the 2.9% increase in gross domestic product for the nation as a whole during the same quarter. GDP had been dropping over successive quarters, signaling the incipient stages of a recession, which some economists believe still looms.

Inflation remains at a 40-year high, and earlier this week, the Federal Open Market Committee announced another half-point hike in the Fed’s benchmark interest rate, pushing it to between 4.25% and 4.5% — a tier not seen in 15 years.

The UCR economic forecasting team did not theorize as to what the ultimate outcome of the hikes might be, or whether they’ll successfully dampen the inflationary cycle by soaking up excess liquidity, or “easy money.”

Despite the gains in regional growth, the third-quarter rate was still well below where business activity registered at the end of 2021, with an estimated 6.4% expansion.

“The Inland Empire has experienced a very steady economic recovery, outpacing coastal California along many key measures,” Center for Economic Forecasting Research Manager Taner Osman said. “While we are now seeing some weakness in the residential real estate market, that has been largely offset by impressive growth in employment, the labor force, consumer spending, building permits and commercial real estate.”

Home sales in Riverside County were down 42% year-over-year in October, while in San Bernardino County, they were down 48%. Prices were also lower, but generally less than 5% over the previous year.

The high cost of living in Southern California, exacerbated by accelerating inflation, is a deterrent to drawing workers to the region, unlike other parts of the country, the center said in its first-quarter report.

However, robust commercial real estate development points to ongoing confidence in job growth for the region.

According to the center, building permits for new office space ballooned almost 400% between the start of the year and the end of the third quarter.

“Moreover, many existing firms have opted to improve or expand their space, as illustrated by a 46% annual jump in non-residential alterations and additions,” according to the report.

Forecasters said earlier this year that the region had largely recovered the jobs lost during the coronavirus public health lockdowns of 2020 and part of 2021.

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SACRAMENTO, Calif. (AP) — California Gov. Gavin Newsom on Tuesday proposed a $4 billion spending plan he says will create jobs and help small businesses recover from the economic downturn brought on by the coronavirus pandemic.

Close to half of that money — $1.5 billion — would help people purchase electric cars and build the charging stations necessary for drivers to use them. That proposal is part of Newsom’s goal to ban the sale of new gas-powered cars in California by 2035.

Small businesses would get $575 million. The money would pay for grants of up to $25,000 each to small business owners, with priority given to areas and industries most affected by the pandemic. That money includes $25 million for small museums and art galleries that have been forced to close during the pandemic.

Newsom and the state Legislature have already given $500 million to this program, so this proposal would make more than $1 billion available.

In a normal year, California’s budget would not take effect until July 1. But Newsom said he will ask the Legislature to approve the money for small businesses before July 1, although it’s unclear when that could happen.

In a joint statement, Assembly Speaker Anthony Rendon and Senate President Pro Tempore Toni Atkins said they would work with Newsom “to take early action in providing meaningful additional relief.”

“Californians are hurting and need immediate assistance to weather the current crisis,” they said.

Newsom also wants to give $430 million worth of tax credits to businesses that stay in California and create full-time jobs. That proposal comes as a record number of people are leaving the state, slowing California’s growth rate to its lowest since 1900. A number of high-profile businesses have recently announced they would move their headquarters to other states, including tech giants Oracle and Hewlett-Packard.

The proposal would also extend a popular tax credit for small businesses. Many businesses had to lay off or furlough workers because of the pandemic. Last year, Newsom signed a law that promised to give small business owners a tax break if they hired those workers back. Business owners got a $1,000 credit on their state tax bill for the net increase of each new worker between July 1 and Dec. 1.

Newsom said more than 9,000 businesses have reserved $54 million of those credits so far. His proposal would spend $100 million to extend that program, but offered no further details.

Other benefits include another $50 million for a program that offers up to $100,000 in loans to small businesses, $100 million to expand a sales tax exemption to reduce the cost of manufacturing equipment, and a proposal Newsom says would mitigate the effects of a cap of a federal income tax deduction.

Newsom also said he wants to waive $70.6 million in various fees imposed on businesses most impacted by the pandemic — barbers, cosmetologists, manicurists, bars and restaurants.

“These budget proposals reflect our commitment to an equitable, broad-based recovery that ensures California remains the best place to start and grow a business,” Newsom said in a news release.

John Kabateck, director of the California Small Business Association, said Newsom’s proposals are “very helpful steps in the direction of Main Street recovery.” But he criticized Newsom for investing the bulk of the $4 billion on infrastructure for electric cars, saying that money would be better spent by giving to small businesses.

“We’ve got retailers, shoe store owners, restaurant owners, farmers and many more who are not sure they are going to be around for the next month or two and any spare dollars that our state has in the coffers ought to be invested there and not squandered on admirable but misdirected priorities,” he said.

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