The COVID-19 numbers are taking a dramatic turn for the worse in California, with positive tests, hospitalizations and ICU cases all rising sharply in recent days.
That’s prompting many California counties to scale back their reopening plans, and now Gov. Gavin Newsom said he’s about to order more restrictions.
California has already taken massive economic hits because of the coronavirus pandemic, which put a lot of pressure on the governor and other officials to allow things to reopen, some say prematurely. Now, the state may try to put the horse back in the barn, just as businesses were starting to get going again.
For more on the economic impact of the pandemic and what going back to staying at home and sheltering in place could mean, Dr. Jerry Nickelsburg, Director of the UCLA Anderson Forecast and adjunct professor of economics at UCLA’s Anderson School of Management, joined KCBS Radio’s "The State of California."
We can’t yet put a dollar figure on the impact of the pandemic because it’s ongoing. Secondly, a lot of the impact is very recent and we don’t have much data on that. So, what we do know is that the unemployment rate has shot up quite sharply. It’s likely been going down as the economy started to open up. But with the new restrictions, that will cause the opening up to slow down and the unemployment rate to remain high. We’re expecting double digits through the year.
There’s actually a bit of good news in that. Part of the data, parts that are keeping the Dow up, is technology stocks. That’s just proportionately California, so that’s just a view that the tech industry is going to do relatively well through the recession and is going to be a growth sector as we come out of the recession. Another part of that is that there’s a lot of liquidity in the U.S. coming from abroad and the Federal Reserve, and where do you put that liquidity? You could put it in zero interest rate Treasury bills or you could put it into equity. The third aspect of that is that the view is from the market that the downturn won’t be very long. It’s not going to be like 2008 or 2009. Equity reflects the value of a firm going forward. So there is some sense on Wall Street that things are not good right now, they’re going to get better as we go through 2021 and 2022.
To some extent, reclosing businesses isn’t doing anything new because people are afraid to go out to restaurants and bars. However, what about the financial damage? Our expectation is that in both small firms and large firms that as we move through July and into the third quarter this year in August, we’re going to see a string of bankruptcies where firms just could not make it to the other side of this. One thing to keep in mind is this is a pandemic-produced recession, something we haven’t seen in this lifetime. There’s a great deal of uncertainty about how it plays out.
When you look at the economy, the first thing we have to do is make an assumption about what’s going to happen with the pandemic. Our assumption was it’s really going to be late July and August before the economy opens up. Our view with respect to the recovery is that the pandemic has gone away by 2021 and 2022, that the recovery in GDP will take about 18 months to two years and the recovery in employment is going to be at least a year longer than that. So, historically speaking, perhaps a more rapid recovery, certainly more rapid that the last recession. But it’s going to take some time. It’s not going to be a quick snap back.
Interestingly, in this recession, unlike what we’ve seen in others, is relatively firm prices for homes in California. San Francisco has seen a little bit of weakness, especially in the rental market, but the demand for housing in California seems to remain strong. We’re not expecting the kind of decline in home values that we saw in the last recession.