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Pandemic’s punch as bad as it feels, CSUDH economist find

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The South Bay’s large number of start-ups over the past three years will help the area recover from the pandemic recession faster than other Los Angeles County areas, according to economists at Cal State Dominguez Hills. Source: Pitchbook

 

by Paul Browning

Entertainment, hospitality and food services were the three employment sectors hardest hit by the pandemic, according to the 2020 South Bay Economic Report released last week by Cal State University Dominguez Hills.

Los Angeles County’s second quarter employment in the three sectors fell approximately 38 percent, compared to second quarter 2019. Overall South Bay employment fell 15 percent, the report found.

The employment sectors least hurt were construction (down 5.7 percent) and local government (down 3 percent). Federal government employment was up 1.6 percent, due to census hiring, and finance and insurance was up 3.9 percent, according to the report.

One bright spot was real estate. July home prices in the South Bay were up 15 percent over July 2019. Some experts cite low mortgage rates and a tight supply as the main drivers. But others are also considering the more permanent impacts the pandemic is having on location choices made by people working from home, now that the prospects of telecommuting on a permanent basis seem more feasible.

The university’s South Bay Economics Institute (SBEI) produced the forecast report, which this year is framed around the COVID-19 outbreak, lockdown, and the resulting recession.

The SBEI is made up of CSUDH faculty members: Assistant Professor of Finance Jennifer Brodmann, Assistant Professor of Public Administration Fynnwin Prager, and Professor of Economics Jose Martinez. 

According to the SBEI report, businesses suffering the greatest negative impact due to the lockdown include hair and nail salons, gyms, movie theaters, restaurants, music and theatre venues, and the event industry. 

“Until vaccines and treatments are FDA-approved and widely used, many businesses will be unable to function as before,” the report states.

“Those providing more essential goods, such as grocery stores, deliveries, and those that are already in cloud-based technologies have had a huge boost to their performance,” Brodmann said. “But we have seen drastic hits to hospitality and event spaces, anything that features indoor activities has had to shift to more outdoor accommodations, such as restaurants, and we have seen a shift to more delivery pickups both in the retail and hospitality sectors.” 

The pandemic’s economic shock has been worse than the 2008 recession when the fourth quarter GDP declined 8.4 percent.  Between the first and second quarter in 2020, the GDP declined from -5 percent to a staggering -32.9 percent. 

“Obviously, on a macro scale, we’ve seen significant impacts to GDP, the likes of which in a single quarter we have not seen since The Great Depression,” Prager said. “It has impacted the entire economy regardless of which state we’re in. But we have bounded back a little bit, which is good news.” 

According to the SBEI’s report, the home-based economy has made substantial gains, with 45 to 56 percent of the workforce working from home (up from 5 to 15 percent). E-commerce soared this year, with $77 billion more spent than projected from March to June. There has also been increased spending on groceries, household supplies, and home entertainment. 

Despite pandemic’s damage, the South Bay Economic Institute expects Gross Domestic Product (GDP) to reach pre-COVID-19 levels by mid-2021, and employment to follow suit the following year. 

The South Bay benefits from its economic and workforce diversity, the report states. Its industrial sectors have the flexibility to recover more quickly, especially as high-tech Silicon Beach and biotech sectors continue to grow, and its workforce is demographically and educationally prepared to help aid recovery.

South Bay cities have also fared better with the virus compared to national hotspots. The region’s deaths per 100,000 population is 25.6 deaths, compared to the United States’ 47.9. 

Fortunately, the L.A. area is remarkably diverse, and the South Bay even more so, Martinez said. “We are confident that overall, though we are dealing with this pandemic that is hurting a lot of sectors, we’re going to do fine and find a way to innovate and move on through this pandemic,” he said. “While some businesses are unfortunately closing, others are opening. Those are the signs you want to see.” ER

 

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