Wednesday, September 30, 2009

Labor Markets Still Soft... Despite Positive Signs

Beacon Economics 9.30.09

The Inland Empire’s unemployment rate has fallen for two months in a row - from 14% in May to 13.1% in July. Unfortunately, a closer look at these statistics reveal that things are actually getting worse, not better.

Between March and July, over 31,000 people dropped out of the labor force in the Inland Empire. Because these "drop outs" are no longer actively looking for work, they are not included in the tabulation of the unemployment rate, mitigating its increase. When the economy turns, and people reenter the labor force in search of work, it will put upward pressure on the region’s unemployment rate. Beacon Economics is forecasting that unemployment in the Inland Empire will hit a peak of 14% in the 4th quarter of this year.

Total nonfarm employment won’t reach its lowest point until the 1st quarter of 2010. Expect employment in the Inland Empire to fall back to 2004 levels by the end of this recession—a loss of roughly 1.13 million workers or a decline of 10.8%.

Predicted employment declines in the region are much larger than what Beacon Economics is forecasting for Los Angeles (6.8%) and San Diego (5.9%). We have however revised our Inland Empire employment forecast upward from our May estimates based on increased building permits in the 2nd quarter of this year, and on a slowing in the decline in taxable sales. Declines in construction and trade employment were mitigated by these factors. However, Beacon Economics is decidedly more pessimistic on government and leisure/hospitality employment than previously forecast; in these sectors we see more job losses to come.

By the end of 2010, we expect employment to be on the rise and unemployment to be well into its decline. However, the subsequent growth phase will occur at a slower pace than many expect.