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Thursday, Feb 22, 2024

Economists Uncertain How New Restrictions Could Impact Jobs Recovery

Los Angeles County’s jobs report for October showed a sharp bounce back from spring’s pandemic-induced lockdown.

The county saw a gain of 79,000 payroll jobs and a plunge in the unemployment rate of more than three percentage points to 12.3%, according to data released in mid-November by the state Employment Development Department.

But local economists are split on what lies ahead for the region’s job market and its economy with Covid-19 cases surging in L.A. County and a new raft of business closures taking effect.

A pair of economists said the new restrictions could halt and maybe temporarily reverse the jobs recovery.

Another expert, however, said the economy’s underlying strength will likely have enough momentum to provide a bridge through the difficult months ahead until Covid vaccines arrive around the middle of 2021.

Yet all agree that the magnitude of October’s jobs gain and the unemployment drop was a welcome surprise.

“Los Angeles County made dramatic improvements in October,” said Sung Won Sohn, professor of finance and economics at Loyola Marymount University in Westchester.

The gains were spread throughout almost every sector of the economy, led by the entertainment/recreation and professional/business services industries, which both added nearly 10,000 jobs in October from September, according to the EDD. The food services/drinking sectors were not far behind with an increase of 8,000 jobs during the month.

“The jobless rate fell significantly because many small service businesses including restaurants, hair salons and nail shops partially reopened and recalled some of the workers,” Sohn said. “Also, record low interest rates have helped housing and related businesses.”

2020 Unemployment Rate (Jan.-Oct.)

January 4.3 3.9 3.6
February 4.3 3.9 3.5
March 6.6 5.5 4.4
April 20.8 16.4 14.7
May 21.1 16.4 13.3
June 19.4 14.9 11.1
July 17.9 13.3 10.2
August 16.1 11.4 8.4
September 15.5 11.1 7.9
October 12.3 9.3 6.9

Source: California Employment Development Department and Census Bureau 

Strong job gains

Another surprising sign of strength came from an increase in the county’s labor force. In recent months, the labor force had been shrinking as Los Angeles County residents dropped out, either out of discouragement about new job prospects or because of the need to take care of family members.

That trend reversed in October as the labor force grew by 133,000 people to 5.08 million. That’s one of the largest single-month gains on record. And the number of residents who reported they were working jumped by 277,000 to 4.45 million.

“I was pretty surprised at how much the labor force and particularly household employment started bouncing back,” said Christopher Thornberg, founding partner of Westchester-based Beacon Economics. “Household employment bounced back by almost a third, which — even if a little overstated — indicates the underlying strength of the economy.”

Thornberg said he believes the job gains in October actually reflect in part the EDD catching up with jobs that were added in previous months.

“The July and August numbers looked particularly anemic given the amount of reopening that had taken place” among local businesses, he said.

Thornberg explained that one reason for this lag may be an increased pace of new business formation, which is hard to catch through traditional employer payroll surveys.

He cited national Census Bureau data that showed more than 1.56 million new business formations during the third quarter, nearly double the number for any previous quarter dating back to 2010. These numbers are more current because they rely on federal tax forms that new businesses must submit.

These companies are hiring employees, but they are so new they aren’t yet in state databases and are difficult to track.

Thornberg said these new businesses are the result of two trends: restaurant or other business owners realizing that they can no longer sustain their businesses with existing cost structures during the pandemic, so they shut down and start over, and laid-off workers deciding to hang out their own shingle.

Impact of new restrictions

The October data from the EDD was based on surveys taken mid-month, before the current surge in coronavirus cases began to take hold and prompted implementation of additional business restrictions over the past two weeks.

The restrictions include a ban last week by L.A. County on all outdoor dining and drinking, and a curfew imposed the previous week that required all nonessential businesses to close by 10 p.m.

Both Sohn and Bill Allen, chief executive of the Los Angeles County Economic Development Corp., said the impact of these restrictions could be severe over the next month or two.

“With the newly announced public health restriction on outdoor dining set to go into effect as of Nov. 25, employment in that sector will almost certainly decline in November and December,” Allen said in an email.

“Restaurant owners have made clear to the LAEDC they have exhausted their PPP loan capital and invested heavily in outdoor dining tents, furniture and patio heaters to comply with the public health protocols and keep their patrons safe. Therefore, they have no working capital left to retain employees who will no longer be able to serve patrons indoors or outdoors at their restaurants during the holiday season.”

Sohn said the restrictions will almost certainly slow progress in the job market and could even prompt an overall decline in jobs for November and possibly December. He said the lack of further economic stimulus coming from Washington could also place a further drag on the economy.

“We could be in for a ‘W-shaped recovery,’” he said. “The economy could get worse before it gets better with the arrival of vaccines.”

But Beacon’s Thornberg disagreed.

“I just don’t see a huge new wave of business closures,” he said. “Yes, some might close. But most have adapted to doing business during the pandemic and have made it this far. They will continue to hunker down, especially now that we have the prospect of widespread vaccinations beginning in six months or so. That’s the big factor that’s changed since the last round of restrictions.”

Howard Fine
Howard Fine
Howard Fine is a 23-year veteran of the Los Angeles Business Journal. He covers stories pertaining to healthcare, biomedicine, energy, engineering, construction, and infrastructure. He has won several awards, including Best Body of Work for a single reporter from the Alliance of Area Business Publishers and Distinguished Journalist of the Year from the Society of Professional Journalists.

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