Economists cautiously optimistic about recovery while Santa Clara County employment improves

As the Bay Area takes more steps to reopen amid the pandemic, a new report is taking a cautiously optimistic approach to the ability of the region’s economy to recover from its biggest shock since the Great Recession more than a decade ago.

But, according to officials with the Bay Area Council (BAC), a possible new surge in COVID-19 cases in the fall and winter remains a psychological barrier that may impede the ability of the economy to turnaround for months to come.

The Bay Area Council, an influential business advocacy group, gave its assessment of the local economic situation and outlook Oct. 22 as part of its biennial economic profile.

Speaking on a Zoom webinar to discuss the report, Patrick Kellerman, research director of the BAC’s Economic Institute, said the economy around the area remains subject to a trade off between the necessities of getting people back to work and ensuring as much as possible the health of the public.

“Around here we have taken a more cautious approach,” Kellerman said. “We’re still being pretty cautious, and the result is we remain pretty far away from a full recovery.”

Kellerman said evidence of that can be found in figures such as the unemployment numbers for the nine Bay Area counties, which have lost a combined 366,900 jobs since January, and now have an unemployment rate of 8.1%.

However, the employment situation is showing some signs of improvement. At the end of September, Bay Area counties reported having slightly more than 3.7 million people employed, up from 3.68 million at the end of August.

“I’m structurally optimistic (about the Bay Area’s economy),” Kellerman said. “I do think that for our future as an innovative region, a little more breathing room is needed.“

In Santa Clara County, the unemployment rate of 7% remains one of the lowest in the Bay Area, and is only bettered by the 6.5% rate of Marin County. Solano County’s unemployment rate of 9.7% is the highest among Bay Area counties, according the BAC.

On the national level, California’s unemployment rate of 11% has the state trailing only Nevada, and its 12.6% unemployment rate and Hawaii’s 15% unemployment rate, according to the latest figures from the U.S. Bureau of Labor Statistics.

Despite the encouraging employment data, local business leaders say a recovery has a long way to go in the South Bay. The San Jose Downtown Association, in a report earlier this month, painted a bleak economic picture, noting half of the storefront businesses in downtown are shuttered.

Sarah Bohn, senior fellow at the Public Policy Institute of California, said it’s no secret the hardest hit job sectors remain those in the leisure, hospitality and services industries. Construction, manufacturing, health care and some areas of retail haven’t been bruised as much, and providers of professional services, such as lawyers and accountants, have suffered the least job losses during the pandemic.

“The shock in California has hit some workers more than others,” Bohn said. “(It) reflects the persistent differences in economic work and opportunities.”

Jeff Korzenik, chief investment officer at Fifth Third Bank, which sponsored the BAC report, said it’s important to keep in mind how markets work, and the typical steps that occur that lead to economic recovery.

“In theory, we should be able to turn the economy around more quickly,” Korzenik said. “Markets are forward looking, and reflect what we will see going forward. Stock prices recover before earnings, earnings recover before GDP (gross domestic product), and GDP recovers before employment.”

However, Korzenik said that even if the economy improves, it will probably take the release of a coronavirus vaccine to return a sense of normalcy to the employment situation

“Ultimately, we’re still held hostage to medical information,” Korzenik said.

Contact Rex Crum at [email protected] or follow @rexcrum on Twitter.