The 2020-21 state budget agreement, announced this week by Gov. Gavin Newsom and legislative leaders, assumes that California’s economy will perform a bit better than previously assumed — enough better to add another billion dollars to the revenue side of the ledger.
We don’t know whether that’s a realistic adjustment or simply a number that was conjured up because the politicians needed another billion bucks on paper. In fact, no one really knows where the economy is headed as the worst recession in living memory continues.
While California is reopening its economy after Newsom ordered mass shutdowns to combat spread of the deadly coronavirus, we really don’t know how many shuttered businesses can and will reopen. Nor do we know how many of the millions of laid-off workers will regain their jobs.
Finally, we don’t know whether the reopening is sustainable, or whether Newsom will clamp back down in response to increases in infection rates, hospitalizations and deaths. He hinted this week that he may do that.
What we do know is that despite a small uptick in jobs in May, unemployment has tripled during the COVID-19 shutdown with nearly 3 million officially unemployed workers and a jobless rate of 15.9%, well over the highest rate seen during the Great Depression.
However, the official data don’t account for workers who have dropped out of the labor force or are working shorter hours, and the new data show an 841,000-person drop in the labor force from May 2019. So the real jobless rate is certainly higher.
The Economic Gulf Between the Los Angeles Metropolitan Area and the Bay Area
Every corner of California has been affected, including the San Francisco Bay Area, where unemployment had dipped to very low single digits prior to the shutdown. Oddly, some of the lowest numbers today are recorded in lightly populated rural counties whose economies are divorced from the economic mainstream, such as 10.7% in Trinity County.
The 20% unemployment rate in Los Angeles County — nearly double the rates in Bay Area counties — stands out, and not in a good way. It has a quarter of the state’s population and even when the economy was humming, it had the state’s highest poverty rate, as calculated by the Public Policy Institute of California, due to a plethora of low-skill, low-pay jobs and sky-high housing costs.
The economic gulf between the Los Angeles metropolitan area and the Bay Area, already wide before COVID-19 struck, is now even wider and LA will continue to be a drag on the state even when and if the overall economy emerges from recession.
“California’s job growth engine has come to a screeching halt like an automatic car transmission that suddenly gets thrown into reverse,” Scott Anderson, chief economist at Bank of the West, told the Los Angeles Times.
We Also Don’t Know Whether Newsom Will Crank the Economy Back Down
Christopher Thornberg, a partner in Beacon economics and director of the University of California, Riverside, Center for Forecasting has a sunnier view.
“The folks out there calling for a long, protracted U-shaped recovery, believe the damage from the closures has been so profound that the economy won’t be able to grow even after mandates are lifted,” Thornberg said. “It’s true the May data represent only a small uptick, but there was a bounce in employment while the economy was still closed.”
Thornberg added that until job numbers from June and July, reflecting the state’s economic reopening, are known “the pace back to normality will not be truly understood.”
However, we also don’t know whether Newsom will crank the economy back down, or whether we’ll see another wave of infections and deaths in the fall, as many authorities fear.
CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary.