UCLA Anderson Director: California Is a State of Uncertainty

At the UCLA Anderson Forecast June 2020 Economic Outlook, a virtual event hosted this week, Jerry Nickelsburg, director at the UCLA Anderson Forecast, called California a state of uncertainty. At the moment, California job loss is trending on par with US numbers, but the state’s loss of travel, hospitality and retail activity will certainly have an impact on job loss and economic recovery, according to Nickelsburg.

To put the job loss in perspective, Nickelsburg started his presentation comparing unemployment in the previous three recessions. The numbers illustrate how rapid and different this recession has been:

- 1990: 500,000 jobs lost, 4% of total jobs over a 35-month period

- 2001: 300,000 jobs lost, 2% of total jobs over a 12-month period

- 2008: 1.3 million jobs lost, 8% of total jobs over a 26-month period

By comparison, in 2020, we have had 2.7 million jobs lost, a total of 15% of total jobs, in only two months. In California—as in the nation—most of the job losses have come from the leisure and hospitality sector and the retail sector. According to Nickelsburg, these two sectors have accounted for 50% of total job losses during the pandemic. “Our expectation is that for both retail and leisure and hospitality, we are going to be about 20% below the peak. So, these sectors are going to lag,” he said. “They are also low-income sectors. So, the folks that are going to be unemployed are also going to be the people that have the least resources to make it through this recession.”

In addition, California will be impacted by a decline in foreign travel. California state travel accounts for more than 20% of total foreign travel to the US, the third highest in the country. “International tourism, which affects both retail and hospitality, is very important for California,” says Nickelsburg. “In 2018, California was number three in the nation for oversees visitors, representing more than 20% of all international visitors.”

Other services and healthcare and social services have also accounted for significant job loss in the state, at about 15% of the total jobs lost. However, Nickelsburg expects these sectors, which include childcare and auto repair, both of which were crippled by the pandemic, to recover. “These sectors are of concern, but we are expecting a reasonable recovery in line with what is happening in the US,” he said.

Local governments will also be set back by the loss of sales tax income from tourism and other retail sales. “Local governments that are heavily dependent on sales taxes are in bad shape,” said Nickelsburg. “That is where I think you are going to see the stress in governments and layoffs in the public sector.”

In addition to job loss, the State of California is also in a financial emergency with a deficit of $54 billion. However, the debt for the state is not as severe as the number would purport. “California has more than $20 billion in rainy day funds that it can draw on in addition to borrowing capabilities,” said Nickelsburg. “So, relative to many other states, California is not in as bad of a shape and certainly not in as bad of shape as the $54 billion would suggest.” The Governor and legislature have agreed to 8% in budget cuts, rather than the 34% initially suggested to manage the growing deficit.