ARTICLE
Price pressures are intensifying, borrowing remains expensive, and the housing shortage continues to limit workforce growth. At the same time, new businesses are opening at a notable pace, downtown is gaining traction, and visitor demand points to a strong summer season. Prices and interest rates Price increases accelerated in April, with the national Consumer Price Index reaching 3.8% on an annual basis, its highest point in three years and above what most analysts had projected. The prior month had come in at 3.3%, making the jump notable. Fuel costs are a significant contributor, with prices at the pump up more than 28% compared to a year ago and airline fares rising by roughly the same magnitude. Even when energy is stripped out, underlying price growth climbed to 2.8%, indicating the problem is not limited to any one category. Public confidence in the economy reflected these strains, with consumer sentiment surveys hitting record lows in April across all income levels and age groups. California faces steeper headwinds than the national average. State economists now project prices rising 4.1% this year, outpacing the broader U.S. forecast of 3.5%, with freight expenses and import-related costs amplifying the pressure felt by local businesses. Service providers, food establishments, and retailers are all grappling with tighter margins at a time when shoppers are becoming more deliberate about where they spend. On the borrowing side, hopes that the Federal Reserve would ease rates before summer have all but faded. Business owners should continue planning for a high-rate environment, with commercial lending conditions remaining tight and refinancing carrying significant cost. Small business outlook A widely followed measure of small business confidence remained below its historical benchmark for the second month in a row in April, holding at 95.9 against a long-run average closer to 98. Business owners are broadly profitable but reluctant to expand, citing four persistent concerns: the rising cost of supplies and services, ongoing difficulty recruiting skilled employees, the high price of financing, and general uncertainty about the months ahead. A growing number of owners have passed along cost increases to customers, but many report that buyers are pushing back, adding pressure to find efficiencies elsewhere rather than relying on price as a relief valve. Workforce and housing California added jobs at a faster pace than anticipated earlier in 2026, with most of that growth concentrated in healthcare, education, and professional services. For Santa Cruz employers, however, the regional labor market remains constrained in ways that statewide figures do not capture. The shortage of affordable housing continues to limit who can realistically live and work here. Longer commutes reduce the pool of available candidates, younger workers are drawn to areas where their wages stretch further, and service-sector wages face sustained upward pressure as a result. No near-term policy shift is expected to meaningfully change this picture, which makes retention and internal development more valuable than ever for local employers. New business activity in Santa Cruz Despite challenges, local business formation is showing genuine strength. The City of Santa Cruz issued 24 new business licenses in April, among the highest single-month totals recorded in more than two years, with most representing commercial storefronts and operations rather than home-based ventures. Each new business receives a welcome package from the city that includes a letter from the Mayor and a guide to available support resources, part of an ongoing effort to help entrepreneurs get established successfully. The downtown corridor is a particular bright spot: a dozen new businesses have opened or announced plans to open so far in 2026, and if that pace holds, the area will surpass its full-year total from 2025. Foot traffic supports this optimism, with visits by local residents running about 8% ahead of last year and visits by people from outside the area up nearly 5%. Visitor economy and lodging trends Tourism is shaping up to be one of the county’s most reliable economic supports this summer. Nationally, travel demand continues to outpace the growth of new hotel supply, and Santa Cruz is well positioned to capture its share of that activity given its appeal to drive-market visitors from across the Bay Area, Sacramento, Los Angeles, and beyond. April geolocation data found that the Bay Area alone accounted for nearly a third of all tracked overnight visitors, with most guests staying roughly two days and nearly half returning for repeat visits. April lodging performance reflected a competitive but revenue-positive environment. County-wide hotel occupancy edged down about 2% from the prior year as new inventory came online, but operators compensated with higher nightly rates, up nearly 7% to an average of $224. The net effect was a roughly 4.5% gain in revenue per available room and total lodging revenue of $24.9 million, up more than 8% year-over-year. Short-term rentals outperformed the traditional hotel segment, posting a 10% increase in bookings and a nearly 10% gain in overall revenue. Fuel costs remain a variable worth watching, as higher prices at the pump can influence how far visitors are willing to travel and how long they choose to stay. Guidance for Chamber members • Build budgets around sustained cost pressure. Price relief at the consumer level and through interest rates is unlikely to arrive quickly. • Speak to value. Shoppers and visitors are still active but more deliberate, and businesses that clearly communicate what they offer will have an edge. • Prioritize keeping good employees. Recruiting in this market is expensive and slow; investing in the people already on your team pays off. • Watch summer booking data closely. Tourism is a genuine opportunity, though fuel prices may shape visitor behavior in ways worth anticipating. • Lean into the local momentum. New businesses opening downtown and rising foot traffic are signs of a community investing in itself. Resources: National economic data Bureau of Labor Statistics (CPI data) NFIB Small Business Optimism Index Federal Reserve news and statements California-specific California Department of Finance economic forecasts California Employment Development Department (labor market data) Santa Cruz local City of Santa Cruz Economic Development Visit Santa Cruz County (Tourism Data) Small business support U.S. Small Business Administration California Office of the Small Business Advocate
Price pressures are intensifying, borrowing remains expensive, and the housing shortage continues to limit workforce growth. At the same time, new businesses are opening at a notable pace, downtown is gaining traction, and visitor demand points to a strong summer season.
Prices and interest rates
Price increases accelerated in April, with the national Consumer Price Index reaching 3.8% on an annual basis, its highest point in three years and above what most analysts had projected. The prior month had come in at 3.3%, making the jump notable. Fuel costs are a significant contributor, with prices at the pump up more than 28% compared to a year ago and airline fares rising by roughly the same magnitude. Even when energy is stripped out, underlying price growth climbed to 2.8%, indicating the problem is not limited to any one category. Public confidence in the economy reflected these strains, with consumer sentiment surveys hitting record lows in April across all income levels and age groups.
California faces steeper headwinds than the national average. State economists now project prices rising 4.1% this year, outpacing the broader U.S. forecast of 3.5%, with freight expenses and import-related costs amplifying the pressure felt by local businesses. Service providers, food establishments, and retailers are all grappling with tighter margins at a time when shoppers are becoming more deliberate about where they spend. On the borrowing side, hopes that the Federal Reserve would ease rates before summer have all but faded. Business owners should continue planning for a high-rate environment, with commercial lending conditions remaining tight and refinancing carrying significant cost.
Small business outlook
A widely followed measure of small business confidence remained below its historical benchmark for the second month in a row in April, holding at 95.9 against a long-run average closer to 98. Business owners are broadly profitable but reluctant to expand, citing four persistent concerns: the rising cost of supplies and services, ongoing difficulty recruiting skilled employees, the high price of financing, and general uncertainty about the months ahead. A growing number of owners have passed along cost increases to customers, but many report that buyers are pushing back, adding pressure to find efficiencies elsewhere rather than relying on price as a relief valve.
Workforce and housing
California added jobs at a faster pace than anticipated earlier in 2026, with most of that growth concentrated in healthcare, education, and professional services. For Santa Cruz employers, however, the regional labor market remains constrained in ways that statewide figures do not capture. The shortage of affordable housing continues to limit who can realistically live and work here. Longer commutes reduce the pool of available candidates, younger workers are drawn to areas where their wages stretch further, and service-sector wages face sustained upward pressure as a result. No near-term policy shift is expected to meaningfully change this picture, which makes retention and internal development more valuable than ever for local employers.
New business activity in Santa Cruz
Despite challenges, local business formation is showing genuine strength. The City of Santa Cruz issued 24 new business licenses in April, among the highest single-month totals recorded in more than two years, with most representing commercial storefronts and operations rather than home-based ventures. Each new business receives a welcome package from the city that includes a letter from the Mayor and a guide to available support resources, part of an ongoing effort to help entrepreneurs get established successfully. The downtown corridor is a particular bright spot: a dozen new businesses have opened or announced plans to open so far in 2026, and if that pace holds, the area will surpass its full-year total from 2025. Foot traffic supports this optimism, with visits by local residents running about 8% ahead of last year and visits by people from outside the area up nearly 5%.
Visitor economy and lodging trends
Tourism is shaping up to be one of the county’s most reliable economic supports this summer. Nationally, travel demand continues to outpace the growth of new hotel supply, and Santa Cruz is well positioned to capture its share of that activity given its appeal to drive-market visitors from across the Bay Area, Sacramento, Los Angeles, and beyond. April geolocation data found that the Bay Area alone accounted for nearly a third of all tracked overnight visitors, with most guests staying roughly two days and nearly half returning for repeat visits.
April lodging performance reflected a competitive but revenue-positive environment. County-wide hotel occupancy edged down about 2% from the prior year as new inventory came online, but operators compensated with higher nightly rates, up nearly 7% to an average of $224. The net effect was a roughly 4.5% gain in revenue per available room and total lodging revenue of $24.9 million, up more than 8% year-over-year. Short-term rentals outperformed the traditional hotel segment, posting a 10% increase in bookings and a nearly 10% gain in overall revenue. Fuel costs remain a variable worth watching, as higher prices at the pump can influence how far visitors are willing to travel and how long they choose to stay.
Guidance for Chamber members
• Build budgets around sustained cost pressure. Price relief at the consumer level and through interest rates is unlikely to arrive quickly.
• Speak to value. Shoppers and visitors are still active but more deliberate, and businesses that clearly communicate what they offer will have an edge.
• Prioritize keeping good employees. Recruiting in this market is expensive and slow; investing in the people already on your team pays off.
• Watch summer booking data closely. Tourism is a genuine opportunity, though fuel prices may shape visitor behavior in ways worth anticipating.
• Lean into the local momentum. New businesses opening downtown and rising foot traffic are signs of a community investing in itself.
Resources:
National economic data Bureau of Labor Statistics (CPI data) NFIB Small Business Optimism Index Federal Reserve news and statements
California-specific California Department of Finance economic forecasts California Employment Development Department (labor market data)
Santa Cruz local City of Santa Cruz Economic Development Visit Santa Cruz County (Tourism Data)
Small business support U.S. Small Business Administration California Office of the Small Business Advocate