California’s economy is raging back strong from the pandemic according to a California Outlook report from Beacon Economics, an independent economic research and consulting firm. The United States is experiencing a similar trend — all signs point to a return to pre-pandemic levels of economic activity by the end of 2021.
San José State University’s Center for Banking and Financial Services hosted its annual Economic Summit this week, including a panel discussion with Christopher Thornberg, a founding Partner of Beacon Economics, and Congressman Ro Khanna, which was moderated by Jay Ross, attorney at Hopkins & Carley.
Khanna represents California’s 17th Congressional District and serves on a number of House committees, including Agriculture, Armed Services, and Oversight and Reform, in which he chairs the Environmental Subcommittee.
Khanna spoke on his three areas of focus for economic recovery: clean technology and tackling climate change, equity in a digital economy, and empowerment of “essential” workers — physical laborers and those in in-person, service industries — “who make our economy run.”
Khanna sees collaboration with academic institutions and the private sector as key to each of these areas. He cited SJSU as a “model public university,” including in its “extraordinary partnerships with the private sector and government” and believes the university is a “pillar of the Silicon Valley economy.”
Beacon Economics’ recent economic and social impact report confirms Khanna’s position. The report shows that San José State generates $1.6 billion in labor in California, with nearly half in Santa Clara County alone; $606.9 in tax revenue that benefits local, state and federal governments; and $4.1 billion in economic impact statewide.
In addition, Beacon found SJSU undergraduates typically graduate with less than half the average debt of California college graduates, and are then recruited by some of the world’s biggest tech companies in Silicon Valley.
“But what is most critical for today’s students, especially those at SJSU, is developing ‘soft skills,’” Moshavi explained, which relate to how we work.
“One of the things we’re working on in the College of Business is career and professional readiness,” said Moshavi. “Forty-two percent of our students are first-generation students. A lot of them have not had exposure to what professional life looks like, especially in Silicon Valley. Part of what we do is prepare those students in the soft skills, in understanding what it means to walk into a professional environment and engage. That’s a high priority for us.”
This is all great news for current students who are preparing to enter the workforce — and an economy that is still in recovery.
Beacon has long partnered with San José State to provide the economic forecast at the annual summit. As Moshavi introduced Thornberg for his presentation at the event, he praised their work, saying: “Beacon has grown, as many of you have watched at this event over the years, to be one of the most respected economic forecasting firms in the state.”
Key insights for navigating a post-COVID economy
Thornberg provided a comprehensive forecast of the local, state and national economy. The annual analysis is key for Silicon Valley businesses, who can use the relevant information from his report to guide decision-making.
He described four key themes related to economic recovery that can be taken from the pandemic:
- Although we’ve experienced a “tragic natural disaster,” history shows that these events do not have lasting impacts on economies — a “quicker-than-normal” recovery from COVID-19 was almost guaranteed.
- The United States’ fiscal and monetary policies during the pandemic created a “rocketship recovery,” which means the economy will be overheated for the next couple of years, carrying risks of inflation, higher interest rates and high public debt.
- The recovery is “accelerating underlying trends” that were already happening pre-pandemic.
The housing situation is stable. It’s not about pricing or a “bubble” — yet — it’s about supply of available housing for those who want it.
- Thornberg said this is a very different business cycle that what the U.S. experienced in 2008 in regards to the pre-recession economy (subprime lending level during the Great Recession versus a healthy economy in 2020), consumer finances (low vs. high savings rates) and underlying drivers of the recession itself (demand shock vs. supply shock).
“This [time of the COVID-19 pandemic] was the deepest recession in history and also the shortest recession in history,” said Thornberg.
Unfortunately, there is still evidence of distress in the economy because the recovery is unbalanced. For example, services are lagging behind while durable and non-durable goods are way above trend.
San Francisco, he said, is about 35 percent down from where they were pre-pandemic because of their reliance on tourism and business-related travel, while San Jose remained relatively stable.
Goods trade is hot, but supply is slow because of the extraordinary demand we are experiencing at the moment.
Overall, national profits are up, along with corporate profits; tech employment is also up, which is great news for Silicon Valley.
Restaurants, hotels, airlines and entertainment are still struggling to get back; they couldn’t rebound until the vaccine rollout and the virus was under control. Yet, travel is currently picking up, and pent up demand for it is at an all-time high — Thornberg suggested buying tickets and planning your travel for the rest of the year now, as prices are expected to continue to rise.
There is a supply crisis in housing in California. Thornberg explained that middle-income people in the state are tired of being outbid for homes and are migrating to other areas where they can find houses without as much competition. With interest rates low and mortgage rates down, we’re seeing a “panic buying market,” not a “bubble” as with the previous recession.
Commercial real estate is still slow; suburban retail in particular has been impacted because of online shopping.
The labor market is “way behind in recovery,” despite employers adding 850,000 workers in June, the largest gain in 10 months. Thornberg explained the reason is a shortage of labor supply, meaning there are a tremendous amount of jobs available but not enough people to fill them.
This is due to a few factors: Some unemployed workers were temporarily laid off and are waiting for their jobs to come back, some are still using their unemployment benefits, and others have money in the bank and are comfortable with waiting for the “right” jobs, which Thornberg described as ones that will lead to better opportunities down the road.
In addition, a great deal of people retired during the pandemic, many of them seniors, and voluntary quits are at an all-time high.
Overall, Thornberg advised the tight labor market is here to stay, and this shortage of labor supply will continue. The answer: Businesses must consider how to retool in order to compensate for the labor shortage long term.
In short, parts of the economy are still struggling, but the strong growth we are experiencing will provide relief. Thornberg stressed the importance of refraining from referring to everything as a crisis, in favor of looking toward the future — now.
“We need to think about the generations coming behind us, whether we’re talking about climate change, whether we’re talking about housing supply, whether we’re talking about the basic issue of the fiscal deficit. We need to go back to thinking about tomorrow.”