How will SLO County’s economy bounce back from COVID? ‘The recovery is underway’
As much of California sees a resurgence in coronavirus cases and restaurants and businesses are forced back outside, many are concerned about the long-term impacts this latest round of restrictions will have on the economy.
However, if all goes as it has, and a vaccine is implemented soon, the economy actually shouldn’t be too worse for wear, economists said at the Central Coast Economic Forecast on Wednesday.
In fact, it could bounce back stronger than ever.
According to analysts at the annual forecast, held virtually this year, the local economy is on track to recover from the impacts of the coronavirus pandemic — pending an end to the virus and its restrictions.
“We might be facing a short-term speed bump, but with a lot of encouraging news surrounding vaccines, I think we would expect 2021 to be a year of strong growth,” said Taner Osman, manager of regional and sub-regional analysis with Beacon Economics.
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Tourism-related businesses took the biggest hit
Prior to the pandemic, the San Luis Obispo County economy was going strong, though it was showing some signs of stagnation: because unemployment was so low at 2.9%, there wasn’t a lot of wiggle room for new job growth, Osman said. Meanwhile, housing prices were steadily increasing, but the actual number of sales had plateaued, and local sales tax revenue was also staying relatively the same.
All of this indicated the local economy was running into some short-term or medium-term “capacity constraints,” Osman said.
But then came March.
In total, there were 13% fewer employed people across all job sectors in San Luis Obispo County in September than there had been in February — markedly higher than the state statistic of 9.5%.
Osman said coronavirus’ biggest impact to San Luis Obispo County’s economy was the hit on the leisure, retail and hospitality sectors — industries that make up a huge portion of the local landscape because of the region’s dependence on tourism.
Before the pandemic, one in every two jobs in San Luis Obispo County was in one of those sectors, Osman said.
Then coronavirus and the resulting public health restrictions hit, and those sectors saw a sharp decline.
Osman said nearly one in three leisure and hospitality jobs have been lost in recent months.
Though there was a brief resurgence in new job growth in June, it has steadily been trending downwards again and will likely stay low until coronavirus restrictions are lifted.
“A lot of the restrictions that have been put in place are not going to be beneficial to the leisure and hospitality sector in particular, in the short term,” Osman said. “So we really need to get over this hump with respect to COVID before we can start to see the labor market gather that momentum that we were seeing this summer.”
Signs of SLO County growth
There are some signs of improvement.
Spending activity in SLO County slowed at the beginning of the pandemic. As of June, hotel and restaurant activity was down 42%, and gas stations saw 44% less business, according to Osman.
But after June, credit card data shows a pickup in local spending, Osman said.
The county’s transient occupancy tax revenue also increased slightly (0.7%) year-over-year as of August, indicating a steady stream of people checking into the county’s hotels over the summer, Osman said.
The hotel occupancy rate was also higher in SLO County (65%) than other destinations like Napa (49%) and Santa Barbara County (62%), as well as the state average (55%), he said.
These are all positive signs for the local labor market, Osman said.
“The recovery is underway,” Osman said. “It has slowed somewhat — but as we go out to 2021 and hopefully move (or) get into a tier where we can put the pandemic behind us, we would expect to see a sharper snapback in terms of the labor market.”
Housing market a bright spot
Osman said the local real estate market is one of the “most positive aspects of the San Luis Obispo economy.”
Home sales were up 16% at the end of the third quarter of 2020 compared with the year previous, which could partially be due to delays in sales at the start of the pandemic pushing them over to the third quarter, he said.
Between February and May, local housing prices decreased by about 1%, but since the summer, the median prices has continued to increase once again, leading to “all-time high house valuation,” according to Osman.
“The residential housing market in San Luis Obispo County has been incredibly resilient as we’ve moved from the depths of the economic fallout seen earlier this year,” he said.
One potential problem on the horizon is a lack of building, Osman said.
Single-family home building has held steady throughout the year, but multi-family permits have lagged far behind normal numbers at this time of year.
Construction overall has also slowed a bit, he added, though that is largely attributed to a decline in retail building.
Signs point toward a 2021 rebound
In all, most signs point toward local recovery.
“A lot of the economic damage, fallout, that was sustained this year was not due to some sort of structural problems,” Osman said. “It was not due to a buildup in household debt which is going to take years to repair. That means that once we can to move beyond the pandemic, we are going to be able to return to some sort of semblance of normalcy a lot more quickly than we have been able to after previous recessions which have been driven by more fundamental and structural issues.”
Osman did have a word of caution.
“The pre-pandemic economy in San Luis Obispo was strong, but it was starting to hit capacity constraints,” he said.
“For businesses to continue to expand employment in San Luis Obispo, the big picture matters. Growth is ultimately going to be constrained by housing supply, and the trajectory for the economy over the medium and long term is going to be determined by the amount of housing that is constructed in the region.”
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