OUR ECONOMY WAS ROCKED

San Diego County lost billions due to the COVID-19 virus in 2020, but early estimates were more grim

ONE YEAR AFTER THE SHUTDOWN

San Diego County’s first pandemic year cost the economy up to $10 billion.

Unemployment hit levels not seen in generations and the tourism industry, one of the region’s biggest employers, was decimated.

But, a new report on 2020 from the San Diego Association of Governments, or SANDAG, uses data to point out it could have been much worse. Aggressive spending by the federal government meant some of the poorest residents — while not all — were able to stay afloat.

Federal programs greatly increased weekly unemployment benefits, stimulus checks were sent directly to bank accounts and a hodgepodge of different rent relief programs helped keep people in their homes.

“Those things, in combination with each other, is the reason you didn’t see the economy completely tank last year,” said Ray Major, chief economist at SANDAG.

SANDAG estimates the 2020 gross regional product was down by $7 billion to $10 billion from the previous year, but initial estimates in October put losses at $12.4 billion.

Major is quick to point out that the data also shows a great disparity in different segments of the population. Even with intense federal spending, low-income San Diegans without a college education were likely to be hardest hit financially while wealthier San Diegans tended to get more wealthy working from home.

Not every case is the same, but it is safe to say there were a few things that could have benefited stay-athome workers: No commuting costs, some exposure — maybe through a 401(k) — to big stock market gains and stimulus checks they may not have needed.

It is difficult to look at the impact of COVID-19 as only a temporary economic problem, considering all the unseen effects of closed schools, shuttered businesses and continued high unemployment. Here are the categories that illustrate the difficult, and often unpredictable, effect of the virus and shutdowns on San Diego’s economy after one year of COVID-19.

Personal savings

Americans on average were actually saving much more money during the shutdowns, either because of precautionary measures or two stimulus checks.

National savings doubled from 7.5 percent in 2019 to 16.4 percent in 2020, said U.S. Census estimates. And disposable income — money available to households after paying taxes — increased by 7 percent.

We know from additional surveys that Californians reported saving a lot of their extra stimulus money but not everyone had that luxury. Around 22 percent said they used the money to pay for food, 16 percent for utilities and 14 percent for rent.

While many Americans may have had to deplete savings just to survive, the overall savings rate hit new heights during the pandemic. The savings rate was a record 32.2 percent in April, said the U.S. Bureau of Economic Analysis.

Still, the overall numbers hide economic inequality. A study from Harvard University-based researchers said that high-income earners (in the top 25 percent of income distribution) made up the majority of savings, as opposed to those in the bottom 25 percent. Its Opportunity Insights consumer spending tracker said highincome Californians had reduced spending at the end of December by 6.9 percent, whereas low-income spending was down by 2.7 percent.

Unemployment

The jobless rate in San Diego County hit a high of 15.9 percent in April during the height of California restrictions, according to recently revised unemployment data from the state Employment Development Department. That was the highest for records going back to 1990.

It had improved to 6.8 percent by November but was up to 8.1 percent in January as the region reached its peak of virus hospitalizations and the state reinstated many restrictions.

Before 2020, the highest unemployment reached in San Diego County was 10.5 percent in October 2009 during the Great Recession.

Unemployment was higher during COVID-19 than the 1991 and 2008 recessions, but the COVID-19 economy was unique in that the home and stock markets reached record highs. Major believes this was, in part, due to $3.5 trillion in government spending. Unemployed San Diegans benefited from this early in the pandemic with $600 extra in unemployment assistance.

A July study from economists at the University of Chicago estimated two-thirds of jobless workers were likely earning more on unemployment than if they were working from April to July. The $600 extra lasted until the end of July and was switched to $300 through executive action by former President Donald Trump (after Congress failed to make a deal) and, later, a second stimulus bill. Enhanced benefits approved in the latest stimulus bill kept benefits at $300 extra a week until September.

Tourism

San Diego County typically benefits as a net importer of tourism dollars. That is, San Diegans might travel somewhere and spend money, but we tend to get way more people spending money here than we lose as a whole.

Tourism, education and retail were all hit the hardest by the pandemic. But nothing compares to tourism, which lost 50,000 jobs from February to December. The San Diego Tourism Authority said visitor spending dropped from $11.6 billion in 2019 to $5.2 billion in 2020.

San Diego’s biggest tourism event, Comic-con, has now been canceled for a second year. The San Diego Convention Center Corp. estimated last year’s July convention, if it had been in person, would have brought in $166.2 million to the region. Just the hotel rooms alone were estimated to bring in $3.2 million in taxes.

The tourism authority said the industry lost 20 years of economic gain and will take around five years to recover.

It wasn’t just 70 to 90 percent of air travel being canceled that made a significant impact. The Port of San Diego said 93 of the 123 scheduled cruise ships were canceled in 2020 — resulting in a loss of $158.6 million in estimated economic activity.

Other hard-hit industries included education, down by 20,900 jobs, and retail, down by 14,400. Construction was up by 4,400 jobs, which was a reflection of homebuilding being declared an essential service early in the pandemic.

Spending

Residents of San Diego County were spending less money everywhere, from fast food to furniture stores, by the end of the year than they were before the pandemic. Notable exceptions were a jump in spending at grocery stores in March at the start of the crisis, and hardware stores in May when it was one of the only types of retail establishments open.

Spending on recreation, like gym memberships, and personal care services in San Diego County was down the most, said a SANDAG analysis of foot traffic data from the U.S. Bureau of Economic Analysis. The data, from the fourth quarter of 2019 to the fourth quarter of 2020, also showed reduced spending on transportation services, restaurants, hotels and health care (likely a reflection of elective surgeries being canceled sporadically during the pandemic).

Meanwhile, spending on durable goods like electronics, home furnishings and appliances shot up. It was the same for nondurable goods — food, paper products and cleaning products — which also saw a big increase.

Retail changed considerably with consumers shifting much of their spending to online, and keeping it up even during times when businesses reopened. National data, from U.S. Census estimates, shows online buying hit new heights in 2020 and did not slow down even when restrictions were lifted.

Job loss by income and race

San Diego’s poorest residents were hardest hit economically during the pandemic, and a college education appears to be a major factor. Nearly 1 in 4 people who had jobs that did not require some form of a college degree are still unemployed.

Nearly 40 percent of jobs that paid below $27,000 a year — roughly $15 per hour — were lost by April. As of December, there were still about 25 percent of those jobs still missing. That compares to 6 percent of jobs lost that paid $27,000 to $60,000 a year; and 3 percent of jobs that paid more than $60,000.

Latinos were hardest hit by job losses, said a Census Household Pulse Survey of Californians. Sixty-four percent of Latinos said someone in their household had been negatively impacted economically as a result of the pandemic.

It was followed by 61 percent of Black Californians; 57 percent of people who identified as two or more races (not Latino); 56 percent of Asians; and 49 percent of whites.

Home prices

Unlike previous recessions, the home market did not crash — it shot up.

Analysts point to three major factors for increases: A lack of homes for sale as potential sellers elected to wait, record-low mortgage rates and demand from stay-at-home workers who wanted a better place to live and work.

The San Diego County median home price hit a record high of $650,000 in October (where it stayed for three months), according to Corelogic data provided by Dqnews. It represented a 14 percent increase in one year. The median price includes single-family houses, condos and newly built homes. It was down slightly to $640,000 in January.

Another way to look at it: The closely watched S&P Corelogic Case-shiller Index said home prices in San Diego County were up 13 percent in a year as of December. Out of 19 cities on the index, San Diego had the third biggest gains, bested only by Phoenix at 14.4 percent and Seattle at 13.6 percent.

The index is slightly different than just looking at median prices. It tracks repeat sales of identical single-family houses as they turn over through the years and then seasonally adjusts data.

While down payments required for a San Diego

County home were significantly higher than they were a year earlier, buyers were helped by low mortgage rates. The interest rate for a 30-year, fixed-rate mortgage was 2.68 percent in December, said Freddie Mac. That was its lowest for records going back to 1971.

Road to recovery

The recently signed $1.9 trillion American Rescue Plan Act of 2021 includes $350 billion for state, local and tribal governments, something Major said would be a big help for rebuilding the economy of San Diego County.

It will be a big factor in helping governments make up for shortfalls in taxes, especially from transient occupancy taxes collected at hotels and short-term rentals. The Rescue Plan Act will likely provide more than $600 million to San Diego County cities. The city of San Diego is expected to get roughly $306 million.

Aside from filling government coffers, Major said money could be used to support different industries. In particular, he said the tourism industry will need the most help coming out of the pandemic because it used to employ around 10 percent of people in the county. He said investments are needed there because it was the hardest hit, not because it is special or better than another sector.

“You can’t just transform that segment of that economy and put everyone into manufacturing or biotech,” he said. “It doesn’t work that way.”

Major said some industries, especially construction, are already back to normal or exceeding where they were during the pandemic.

Once full reopening happens, he expects other industries to quickly bounce back, such as manufacturing, health care (with likely more elective surgeries) and education once schools are totally reopened.

He predicted brick and mortar retail would struggle as so many people have gotten used to shopping online. While there are fewer restaurants in the county today than when the pandemic started, he said demand will be very high and, if an establishment survived the last year, it should quickly feel the benefits.

Some economists are predicting a “roaring ’20s” bounce back of the economy, but Major doesn’t see it. While we will likely see big gains over the next year and a half compared to the last 12 months, he doesn’t see any reason why there will be some massive economic windfall.

“There’s no fundamental reason for the economy to pop back more than where it was when it was normal,” he said.

Major said upcoming concerns include rising inflation because of extensive government spending and a slow bounce back of the San Diego tourism industry. He said businesses have learned how easy it is, and less expensive, to hold a virtual conference. Also, while vaccination efforts are going well in the United States, the same can’t be said for all the nations that typically send international travelers to San Diego.

“Until the entire world is vaccinated, we aren’t going to be able to host tourists from other countries in the quantities we used to,” he said. “Just because we’re vaccinated, it doesn’t mean our borders are completely open.”