Macroeconomic developments have limited effects on Inland Empire – San Bernardino Sun


By Manfred W. Keil and Robert A. Kleinhenz | Inland Empire Economic Partnership

Inflation has reached a level of 8.6%, the highest level since December 1981. How long ago was that? Many of our readers were not even born and those who were around may remember “Let’s Get Physical” by Olivia Newton John being the No. 1 hit of the year. The mighty Dodgers beat the lowly New York Yankees that year in the MLB world series. THAT long ago.

The Federal Reserve Bank has primary responsibility for fighting inflation. It raised the Federal Funds Rate by 0.75 percentage points on June 15, which is the largest such increase since 1994. There is hopeful talk about engineering a “soft landing” from the economy’s currently overheated state, caused in part by consumers who are engaged in so-called “revenge spending” following the restrictions during COVID-19 lockdowns.

The war on inflation, rising interest rates, high energy prices, global security concerns, the tight labor market, and the lingering effects of the pandemic have all contributed to greater uncertainty about economic outlook. Uncertainty is no friend of the financial markets, all of which have slid since the start of the year. Economic activity is also reacting to these developments. GDP  already shrank by 1.4% during the first quarter of this year and growth for all of 2022 may be a fraction of last year’s impressive 5.7% growth rate.

What are the implications of these macroeconomic events for the Inland Empire economy over the  foreseeable future?

Despite all aforementioned negative news, our local economy is doing well, based on evidence through the first five months of 2022. The unemployment rate has fallen to levels policy makers did not think possible only a few years ago, and among all Southern California regions, ours alone has surpassed pre-pandemic employment.

At 3.4% in May, the headline unemployment rate for the Inland Empire hit a record low, despite a labor force that is 30,000 larger than before the pandemic. The May unemployment rate was 0.4% lower than a month earlier and considerably below the year ago rate of 7.5%. Note that  this is the raw (not seasonally adjusted) data. Once we remove seasonal regularities from these numbers, the unemployment rate for the Inland Empire is actually 2.7% with a drop of 0.6% percentage points from an already low level of 3.3% in April. This is unprecedented for a region that typically lags other parts of the state in recovering from economic downturns.

Moreover, the Inland Empire is the only region in Southern California to recoup the pandemic job  losses of early 2020 and move to record high employment levels. Nonfarm employment was 1.65  million in May, 3.7% ahead of the region’s pre-pandemic job count in February 2020. By comparison, Los Angeles County remains 2.5% short of its pre-pandemic employment level while Orange County is 1.8% shy.

The Inland Empire’s industries have shown steady improvement. Nonfarm jobs in the region increased  5.4% compared to a year earlier and rose by 2,800 positions compared to April. Leisure and  Hospitality led all industries with a gain of 2,700 jobs, followed by Government with a gain of 1,800 and Logistics which grew by 1,600. The gain in government jobs will likely be reversed in the coming months because of seasonal layoffs in education. Manufacturing, Transportation and  Warehousing, and Health Care were also among the industries that added jobs. In all, 8 of 17 major industries added jobs from April to May, two were unchanged, and 7 lost jobs, including a loss of 2,800 in Retail Trade.

Transportation and Warehousing, which lent momentum to the region’s recovery from the  economic consequences of the pandemic, has cooled considerably since reaching peak employment of 217,500 in December. Employment in the sector edged down in early 2022 with the end of last year’s holiday season surge, and stood at 208,600 in May, a decrease of 8,900 or 4.1% from the December peak. This pattern may continue for several more months. Consumers across the U.S are shifting their spending patterns as the economy has opened up, increasing the  share of services they consume at the expense of goods purchased.

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