Answers involve consumer psychology, business risk-taking, political will.
Southern California’s economy is on the mend — but how full and quick will a further rebound be?
The pandemic recession was a harsh stop designed to treat a health emergency. But tricky questions remain involving hard-to-quantify factors such as consumer psychology, business risk-taking, and political will.
Determining how the economic damage is repaired — and how soon — is largely a health-science bet.
“At the moment there is a strong tendency for economists to start to become sort of armchair amateur virologists and to try and predict the path of the virus itself, or the arrival of a vaccine,” says Brian Coulton, chief economist of Fitch Ratings. “This is quite risky territory and we just have to accept that maybe this is one of those occasions where you should not try to be ‘ahead of the curve’ and accept that non-economic or financial factors that we can’t predict will determine what happens over the next year or so.”
In what ways will coronavirus continue to alter how we work, live, spend and play? Here are 10 economic questions that could shape the future …
1. “Work from home” forever?
The need for workers to leave the office created a workplace revolution that upended the logic behind everything from office towers to migration patterns to transportation spending to house prices.
Jeff Ingham, a senior managing director for the JLL brokerage, sees three key challenges for remote staffs: innovation, mentorship and accountability.
“We are seeing innovative companies with a focus to return to work in a safe manner,” Ingham says. “It will not be everyone returning to work, and it will not be the same as many will have a combination.”
2. Inland Empire, the new king?
This work-from-home revolution suggests a boost to outlying and affordable parts of metropolitan areas — such as Riverside and San Bernardino counties.
Economist Chris Thornburg of Beacon Economics notes it’s not like the Inland Empire is some little-known town. And he concedes there’s some upside to the region “if more businesses allow work from home, the commute gets less scary and people may think ‘I could get a little more house for my dollar.’ “
Yet how much Inland housing can be created, as Thornburg notes, “they just don’t have the room for it.”
3. Who’s moving?
“Can California’s economy produce enough livable, high-wage wage jobs to lure and retain workers?” asks economic professor David Smith of Pepperdine’s Graziadio Business School.
If you can work from anywhere, high-cost places like Southern California are in trouble. Smith calls the state’s already high unemployment rate “disturbing,” which makes keeping folks here even tougher.
“It’s clear that people are being lured out of California at an alarming rate and is likely to continue in the near term,” he says.
4. More stimuli?
The federal government handed out at least $4 trillion of financial help — will there be more?
According to Sandy Sigal, CEO of the NewMark Merrill brokerage, states and municipalities need funds to balance budgets; struggling small businesses need money to keep workers; and the still unemployed need cash to stay financially afloat.
“So if the stimulus comes through, recovery in 2021 should be strong by the second quarter,” Sigal says. “If not, 2021 could be a very tough year.”
5. The Fed’s next move?
The Federal Reserve’s job is to provide some economic certainty but it made itself a huge unknown.
It created record-low interest rates, then it undertook a giant policy retooling to focus more on jobs and less on inflation. So if the central bank won’t hike rates any year soon, does that morph into a surging cost of living?
“How long will it be before investors recognize that the inflation rate is rising on a longer-term secular basis instead of a shorter-term cyclical or transitory basis?” asks market watcher Charles Rother of Sector Logic.
6. Who’ll be shopping?
Much of the financial stimuli translated to consumers paying off debts and boosting savings.
That offered little help for local shopping centers. So, many merchants and their landlords are anxiously awaiting a significant return of shoppers.
“What sales will look like in 2021?” asks Matt Hammond, a senior vice president at the Coreland Companies brokerage. “Will the customer come back? What type of additional restrictions will government enact that will limit growth? Will there be job opportunities?”
7. Entertain us how?
The business of providing fun to our lives — work that touches numerous Southern California industries — has been decimated.
Any return to near-normal will take both government approval as well as consumer acceptance.
Economist Ali Wolf of Meyers LLC wonders, for example, if college and professional sports teams will be allowed to host their usual crowds any season soon. What about plays, concerts and comedy clubs?
“Does wedding season resume normally next year?” Wolf asks “If no, there are some companies that won’t be able to withstand losing two seasons.”
8. Shall we meet?
As hotel analyst Alan Reay of Atlas Hospitality explains, the meeting business — a huge part of local tourism — isn’t something that just restarts when government prohibitions end.
Getting conventioneers, exhibitors and meeting spaces coordinated is no easy task. Who’ll take the risk that folks show up to a gathering?
“How much lead time is going to be needed for organizers to get a good feel on attendees?” Reay asks. “In the short term, I see the numbers on these big conventions being way off as people take a ‘wait and see’ approach.”
9. How many warehouses?
The pandemic meant you shop online and get it now.
That urge “has massively accelerated the growth of e-commerce and that shift may be permanent,” says John Minervini, executive managing director of Cushman & Wakefield’s Los Angeles brokerage. That means “strong demand for fulfillment facilities and the need for last-mile facilities.”
That assumes this shop-at-home rush remains a big thing. And that folks have incomes to spend.
“Cautious optimism,” Minervini says.
10. Can SoCal retool?
Pepperdine’s Smith recalls watching great economic pain in his native Michigan in the 1980s when the auto industry was hammered by foreign competitors.
Today, Smith foresees a key Southern California employment category — tourism, food service and entertainment — operating at a low capacity for a long time.
“The big question is, can the California economy show the agility and grit to pull ourselves up by the bootstraps,” Smith says. “If past history is any indication, I believe the answer is “yes”. However, the lift up to surer footing will be unlike any past recoveries.”