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Last week, the Santa Cruz County Chamber and the University of California Santa Cruz (UCSC) hosted an Economic Forum on the UCSC campus (the Cowell Haybarn) to a full house crowd. The haybarn provided a very nice, comfortable space to listen and learn about the current economic trends around the nation, in California and in Santa Cruz. Dr. Jon Haveman was our keynote speaker who presented a great slide deck as an overview of his talk. You can view his slide deck here: https://needelegation.org/Presentations/USEconomy_02152023.pdf As we have seen during the last three quarters of 2022 and into the first quarter of 2023, some economic pundits believe we are in or at a recession based on the principle when you have two quarters of a down market — that translates to a recession. As Dr. Haveman pointed out to the attendees this economic downturn has no similarities to the recessions of 2001 (dot-com implosion) and 2008-2009 financial and housing crisis. Those two most recent recessionary times had high unemployment, inflation, a flattening of the economy and a drag on money borrowing. The rate that banks borrow and loan.<> The COVID 19 pandemic era from March 2020 to 2021 indicates the world economic slowdown that escalated. However, what happened while people were laid off, businesses shuttered and people stayed home — either in a remote work environment or to just take a break — consumer spending continued. Of course people were not dining out or taking vacations but they were buying “stuff’ to be more efficient at home — new movie purchases, TVs screens, increasing internet purchases. A quick snapshot of economic indicators on slide 7 shows the retail sales rise from Feb. 2020 to January 2023. We all know about the grocery, gas, and building supplies price increases: However, take a look at on-line and sporting goods consumption (think Peloton and treadmill purchases to fuel the spending habits).<> The non-farm employment monthly rates also indicate the significant drop in employment in 2021 of 268,000 job loss to the current January 2023 showing a job growth of 517,000. This trend suggests a tight labor market going forward.The employment gap (slide 10) presents the job drop during the pandemic vs. where we are today. The forecast was to at 160.1 million jobs however we are 5.1 million below that forecast. While low wage employment is lagging behind in the middle wage quartiles, low wage spending is not. Dr. Haveman’s slides on price increases on Slide 19 and 20 show the rise on gasoline, cereals and bakery products and meats, poultry, fish and eggs caused by a supply vs. demand. The correlation to gasoline refineries going offline, wheat, corn and other grains were reduced and poultry losses occurred because of diseases. Inflation is not just a USA problem, it is a global problem as indicated on slide 21. Yes, the inflation rate in the USA is at 8.5 (as of Sept. 2022, though coming down slightly since that date). The rates in European countries are higher than here. Dr. Haveman offers his thoughts on Slide 24 on the sources of inflation: > Supply chain issues > Composition of spending changes > Corporations have increased prices to cover inflation cost > Too much total spending of the Fiscal Stimulus leads to stronger retail sales. Let's jump to the housing affordability and increasing mortgage rates that have slowed housing sales. We have seen the jump in rates by the Federal Reserve attempt to cull inflation. Over the past ten years the mortgage rates were at an all time low in the 2% ratio and now pitched to a high of 7.5% which has reflected in homes sales falling (slides 30 and 31). We have known that Santa Cruz housing prices are out of reach for the middle class as seen on Slide 32, which shows a slight dip for $1.2 million for a median home value to $1.089 million. Compared to the national rate of $328,000 and California’s rate at $716,900, Santa Cruz has a supply vs. demand problem. Some will say the prices are designed by greedy homeowners wanting the highest price for their homes and using the limited supply to gain that dollar value. However, the discussion from the panelist after Dr. Haveman’s presentation suggests a few changes are on the horizon. The panel included economists Professor Robert Fairlie, Professor Galina Hale, and City of Santa Cruz Economic Development Director Bonnie Lipscomb: moderated by UCSC Campus Provost Lori Kletzer. The focus of the panelist’s conversation was on the local economy in Santa Cruz. Equity was front and center in the conversation. Professor Fairlie and Professor Hale discussed how the lower wage earners were capped out of the housing and rental market, where prices were beyond their economic reach. More needs to be done to level the playing field so those folks can attain wages that reflect the higher cost of living in Santa Cruz County Bonnie Lipscomb pointed out that housing accessibility and affordability were pushing low and middle wage earners to live outside the city and county where daily commutes were required: Living in south county or out of the county and driving to a job in north county is one of the issues. To respond to the deficiency — the City has approximately 3000 housing units in the pipeline where most of the development projects include 20% inclusionary affordable units. In a few projects, the housing units will all be at the affordable rate. Can these units get built in the next few years to address our housing shortage as well as the state’s Regional Housing Assessment Needs requirement? The strategy reflected in the City’s housing plan is to design in-fill projects with the city that are dense (more units) going up in height and not building out. This will be a sea change for Santa Cruz County where all cities and the county must respond to the state housing mandate. Other issues that bubbled to the top in the presentation for Santa Cruz was the pandemic effect on the GDP. Slide 37 offers a different perspective of the economic engine of Santa Cruz County where from 2019 to 2021 there was a remarkable increase in manufacturing at 68.6% change. Yes, as anticipated Ag was down as was Leisure/Hospitality, Professional, science and tech were down as well. Looking further at the Employment breakdown (Slide 38) points out that Leisure/Hospitality, Education and Health care are the leading employment sectors for our region. Another take away was the local population change. We’ve heard the common discussion that California’s population has decreased because of individuals, families and businesses leaving the state. Slide 40 shows a huge decrease in population for the City of Santa Cruz caused by the pandemic as well as the CZU fires. Students are now returning and the exodus appears to be on the rise in early 2021. Working from home in Santa Cruz County: nearly 1/4 (24%) of the employees were working from home compared to the National rate of 17.9% and California at 21.4%. In summary, Dr. Haveman thought there are concerns to watch. Home prices are falling as they are across the state. Will it continue? Santa Cruz has been altered by the pandemic —more remote workers; an economic shift with a focus on manufacturing vs. agriculture; GDP growth is higher in Santa Cruz than in the USA. The questions remain in play. Is this shift permanent — which could mean a positive thing for Santa Cruz County, but as stated above the underlying countywide population decline is a deep concern. Economic reports like this one are a snapshot in time subject to interpretation. Changes are certainly possible as we move into the spring and summer season which are the bellwether economic times for our county.
Last week, the Santa Cruz County Chamber and the University of California Santa Cruz (UCSC) hosted an Economic Forum on the UCSC campus (the Cowell Haybarn) to a full house crowd. The haybarn provided a very nice, comfortable space to listen and learn about the current economic trends around the nation, in California and in Santa Cruz.
Dr. Jon Haveman was our keynote speaker who presented a great slide deck as an overview of his talk. You can view his slide deck here:
https://needelegation.org/Presentations/USEconomy_02152023.pdf
As we have seen during the last three quarters of 2022 and into the first quarter of 2023, some economic pundits believe we are in or at a recession based on the principle when you have two quarters of a down market — that translates to a recession. As Dr. Haveman pointed out to the attendees this economic downturn has no similarities to the recessions of 2001 (dot-com implosion) and 2008-2009 financial and housing crisis. Those two most recent recessionary times had high unemployment, inflation, a flattening of the economy and a drag on money borrowing. The rate that banks borrow and loan.<>
The COVID 19 pandemic era from March 2020 to 2021 indicates the world economic slowdown that escalated. However, what happened while people were laid off, businesses shuttered and people stayed home — either in a remote work environment or to just take a break — consumer spending continued. Of course people were not dining out or taking vacations but they were buying “stuff’ to be more efficient at home — new movie purchases, TVs screens, increasing internet purchases. A quick snapshot of economic indicators on slide 7 shows the retail sales rise from Feb. 2020 to January 2023. We all know about the grocery, gas, and building supplies price increases: However, take a look at on-line and sporting goods consumption (think Peloton and treadmill purchases to fuel the spending habits).<>
The non-farm employment monthly rates also indicate the significant drop in employment in 2021 of 268,000 job loss to the current January 2023 showing a job growth of 517,000. This trend suggests a tight labor market going forward.The employment gap (slide 10) presents the job drop during the pandemic vs. where we are today. The forecast was to at 160.1 million jobs however we are 5.1 million below that forecast. While low wage employment is lagging behind in the middle wage quartiles, low wage spending is not. Dr. Haveman’s slides on price increases on Slide 19 and 20 show the rise on gasoline, cereals and bakery products and meats, poultry, fish and eggs caused by a supply vs. demand. The correlation to gasoline refineries going offline, wheat, corn and other grains were reduced and poultry losses occurred because of diseases.
Inflation is not just a USA problem, it is a global problem as indicated on slide 21. Yes, the inflation rate in the USA is at 8.5 (as of Sept. 2022, though coming down slightly since that date). The rates in European countries are higher than here. Dr. Haveman offers his thoughts on Slide 24 on the sources of inflation:
> Supply chain issues
> Composition of spending changes
> Corporations have increased prices to cover inflation cost
> Too much total spending of the Fiscal Stimulus leads to stronger retail sales.
Let's jump to the housing affordability and increasing mortgage rates that have slowed housing sales. We have seen the jump in rates by the Federal Reserve attempt to cull inflation. Over the past ten years the mortgage rates were at an all time low in the 2% ratio and now pitched to a high of 7.5% which has reflected in homes sales falling (slides 30 and 31). We have known that Santa Cruz housing prices are out of reach for the middle class as seen on Slide 32, which shows a slight dip for $1.2 million for a median home value to $1.089 million. Compared to the national rate of $328,000 and California’s rate at $716,900, Santa Cruz has a supply vs. demand problem. Some will say the prices are designed by greedy homeowners wanting the highest price for their homes and using the limited supply to gain that dollar value.
However, the discussion from the panelist after Dr. Haveman’s presentation suggests a few changes are on the horizon. The panel included economists Professor Robert Fairlie, Professor Galina Hale, and City of Santa Cruz Economic Development Director Bonnie Lipscomb: moderated by UCSC Campus Provost Lori Kletzer. The focus of the panelist’s conversation was on the local economy in Santa Cruz. Equity was front and center in the conversation. Professor Fairlie and Professor Hale discussed how the lower wage earners were capped out of the housing and rental market, where prices were beyond their economic reach. More needs to be done to level the playing field so those folks can attain wages that reflect the higher cost of living in Santa Cruz County
Bonnie Lipscomb pointed out that housing accessibility and affordability were pushing low and middle wage earners to live outside the city and county where daily commutes were required: Living in south county or out of the county and driving to a job in north county is one of the issues.
To respond to the deficiency — the City has approximately 3000 housing units in the pipeline where most of the development projects include 20% inclusionary affordable units. In a few projects, the housing units will all be at the affordable rate. Can these units get built in the next few years to address our housing shortage as well as the state’s Regional Housing Assessment Needs requirement? The strategy reflected in the City’s housing plan is to design in-fill projects with the city that are dense (more units) going up in height and not building out. This will be a sea change for Santa Cruz County where all cities and the county must respond to the state housing mandate.
Other issues that bubbled to the top in the presentation for Santa Cruz was the pandemic effect on the GDP. Slide 37 offers a different perspective of the economic engine of Santa Cruz County where from 2019 to 2021 there was a remarkable increase in manufacturing at 68.6% change. Yes, as anticipated Ag was down as was Leisure/Hospitality, Professional, science and tech were down as well. Looking further at the Employment breakdown (Slide 38) points out that Leisure/Hospitality, Education and Health care are the leading employment sectors for our region.
Another take away was the local population change. We’ve heard the common discussion that California’s population has decreased because of individuals, families and businesses leaving the state. Slide 40 shows a huge decrease in population for the City of Santa Cruz caused by the pandemic as well as the CZU fires. Students are now returning and the exodus appears to be on the rise in early 2021. Working from home in Santa Cruz County: nearly 1/4 (24%) of the employees were working from home compared to the National rate of 17.9% and California at 21.4%.
In summary, Dr. Haveman thought there are concerns to watch. Home prices are falling as they are across the state. Will it continue? Santa Cruz has been altered by the pandemic —more remote workers; an economic shift with a focus on manufacturing vs. agriculture; GDP growth is higher in Santa Cruz than in the USA. The questions remain in play. Is this shift permanent — which could mean a positive thing for Santa Cruz County, but as stated above the underlying countywide population decline is a deep concern.
Economic reports like this one are a snapshot in time subject to interpretation. Changes are certainly possible as we move into the spring and summer season which are the bellwether economic times for our county.