Answers to Frequently Asked
Questions about the Economy
Nick Schultz
City of Long Beach
Seiji Steimetz , Ph.D.
California State University, Long Beach
June 21, 2022
Long Beach City Council
Economic Development & Finance Committee Meeting
2 Subject Areas for FAQ’s
Employment
Inflation & Financial Markets
Gross Domestic Product (GDP) & Economic Growth
Home Prices
CSULB.EDU/ECONOMICS
Employment
3 QUESTION
How is the Leisure & Hospitality
sector still struggling when its
job growth is surging?
4 5
2,200
9,900
10,300
28,800
30,600
45,500
45,800
50,700
51,300
58,600
69,100
69,100
79,700
81,800
111,800
298,500
Management of Companies
Finance & Insurance
Real Estate & Rental & Leasing
Wholesale Trade
Manufacturing
Construction
Information
Educational Services
Transportation & Warehousing
Retail Trade
Admin. & Support & Waste
Health Care & Social Assistance
Other Services
Professional, Scientific, Tech.
Government
Arts, Entertainment, Recreation
Accommodation & Food Service
California Employment Recovery
CSULB.EDU/ECONOMICSSource: CA Employment Development Department
0.4%
3.5%
1.6%
2.3%
3.5%
8.4%
13.6%
6.4%
3.2%
5.3%
2.8%
14.5%
6.0%
3.4%
59.8%
23.7%
Management of Companies
Finance & Insurance
Real Estate & Rental & Leasing
Wholesale Trade
Manufacturing
Construction
Information
Educational Services
Transportation & Warehousing
Retail Trade
Admin. & Support & Waste
Health Care & Social Assistance
Other Services
Professional, Scientific, Tech.
Government
Arts, Entertainment, Recreation
Accommodation & Food Service
March 2021 – March 2022 Employment Growth
6 -15.4%
-9.3%
-1.5%
-48.0%
-38.5%
-9.7%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
% Change in Employment Since Jan 2020
Total (Nonfarm) Leisure & Hospitality
CSULB.EDU/ECONOMICSSource: US Bureau of Labor Statistics; CA Employment Development Department California Employment Recovery
Total employment has recovered to
98.5% of its pre-pandemic level
◦ 2.5 million jobs recovered since
April 2020
◦ 17.5 million current jobs
Leisure & Hospitality suffered
enormous job losses
◦ Employment is still 10% below its
pre-pandemic level
7 114%
103% 101% 101% 101% 101% 100% 100% 98% 98% 96% 95% 95% 95% 93% 91% 88% March 2022 Employment as Percentage of January 2020 Employment California Employment Recovery
CSULB.EDU/ECONOMICSSource: CA Employment Development Department
QUESTION
Why is it so hard for service
industries to find workers?
Don’t service workers want to
get back to work?
8 9
-7.6%
5.3%
13.8%
-48.0%
-38.5%
-9.7%
-1.5%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
% Change in Employment Since Jan 2020
Transportation & Warehousing Leisure & Hospitality Total CSULB.EDU/ECONOMICSSource: CA Employment Development Department; Emsi / Burning Glass; Federal Reserve Bank of San Francisco (Bart Hobijn) California Employment Recovery
They do want to work
◦ They just don’t want to work for you
◦ e.g. Transportation & Warehousing
Employment surged as we
substituted in-person services for
goods (especially online goods)
◦ Leisure & Hospitality earnings per
job are up 29% since Jan 2020
◦ Also, “reshuffling” within the sector
◦ “Great Resignation” or “Great
Renegotiation”?
QUESTION Why is California’s
unemployment rate so high?
10 11
3.5% 3.6%
4.1% 4.9%
0%
4%
8%
12%
16%
20%
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
Unemployment Rate (Monthly, SA)
US California
California Recent Unemployment
CSULB.EDU/ECONOMICSSource: US Bureau of Labor Statistics; CA Employment Development Department Unemployment by State (March 2022)
12 3.5% 3.6%
4.6% 5.0%
0%
4%
8%
12%
16%
20%
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
Unemployment Rate (Monthly, SA)
US California Long Beach
California Recent Unemployment
CSULB.EDU/ECONOMICSSource: US Bureau of Labor Statistics; CA Employment Development Department Unemployment by State (March 2022)
13 12.6%
16.1%
0%
4%
8%
12%
16%
20%
Unemployment Rate (SA)
US California
California Unemployment Since 2005
CSULB.EDU/ECONOMICSSource: US Bureau of Labor Statistics; CA Employment Development Department California unemployment
typically outpaces national
unemployment during
economic downturns
14 14.3%
19.6%
0%
4%
8%
12%
16%
20%
Unemployment Rate (SA)
US California Long Beach
California Unemployment Since 2005
CSULB.EDU/ECONOMICSSource: US Bureau of Labor Statistics; CA Employment Development Department California unemployment
typically outpaces national
unemployment during
economic downturns
Long Beach unemployment is
further amplified during
downturns
15 CSULB.EDU/ECONOMICSSource: US Department of Labor; CA Employment Development Department 0 100
200
300
400
500
600
700
800
900
1,000
1,100
Continued Claims Index (Jan-Feb 2020 = 100)
California US
California Insured Unemployed
◦ California's Insured
Unemployment moderately
outpaces the nation’s
◦ Unemployment benefits
probably don’t explain
California’s elevated
unemployment rates
16 Unemployment & Diversity
CSULB.EDU/ECONOMICSSource: US Census; US Bureau of Labor Statistics Unemployment by State (March 2022)
17 2.8%
6.2%
4.2%
0%
4%
8%
12%
16%
20%
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
U.S. Unemployment Rate (SA)
Asian Black/African American
Hispanic/Latino White
Unemployment & Diversity
CSULB.EDU/ECONOMICSSource: US Bureau of Labor Statistics
18 Why is California Unemployment Higher?
CSULB.EDU/ECONOMICSSource: Emsi / Burning Glass; US BLS Job Openings & Labor Turnover Survey (JOLTS) Feb 2022 Traditional Answer
◦ California employment is more concentrated in
Leisure & Hospitality / Tourism, which has been
slower to recover
◦ But before the pandemic:
Sector (2019)
% of
CA Jobs
% of
US Jobs
Leisure & Hospitality 11.5% 11.1%
Arts, Ent., Rec. 1.9% 1.6%
Accom. & Food Svc. 9.7% 9.5%
Hotels 1.3% 1.1%
Tourism Cluster (UTSA) 10.4% 10.0%
Other Services 3.1% 3.1%
Additional Answers to Explore
◦ California’s diverse population includes large
shares of workers facing opportunity gaps
◦ Because the California labor market is very tight,
workers may be spending more time looking for
better opportunities
Feb 2022
◦ Unemployed: 1.01 million
◦ Job Openings: 1.25 million
◦ Hires : 671,000
◦ Separations: 668,000
◦ Quits: 491,000
Inflation & Financial Markets
19 QUESTION
Why is everything so expensive?
How long will this inflation last?
20 21
524
668
400
500
600
700
US Retail Sales ($Billions, SA)
CSULB.EDU/ECONOMICS
Consumer Demand
Source: Federal Reserve Bank of St. Louis (FRED)
◦ Retail spending is up 27% since before
the pandemic
◦ Online retail spending is up 41% since
before the pandemic
◦ Straining supply chains by increasing
the demand for imported goods
22 CSULB.EDU/ECONOMICS
Inflation
5.4% 2.4%
45.1%
2.6%
8.5% 8.8%
48.0%
5.0%
All Items Food Gasoline Shelter
U.S. 12-month Change in Consumer Prices
Jun 2021 Mar 2022
Source: US Bureau of Labor Statistics; USASpending.gov
Inflation has been driven by:
◦ Heavy consumer demand
◦ Unexpected economic expansion
◦ $4.2 trillion in COVID Relief spending
◦ Supply chains struggling to meet demand
◦ Warehouse space and trucker shortages
◦ Intermittent COVID lockdowns
◦ Feb 2022: Invasion of Ukraine
◦ Expansionary monetary policy
23 0.3%
2.8%2.7%
5.3%
0%
1%
2%
3%
4%
5%
6%
Fed Funds Rate 10-yr Bond Yield 30-yr Mortgage
CSULB.EDU/ECONOMICS
Interest Rates & Monetary Policy
Source: Federal Reserve Bank of St. Louis (FRED)
Federal Funds Rate was practically zero from
Mar 2020 to May 2022
◦ Fed lowers interest rates by increasing the
money supply through bond purchases
◦ Bond purchases increase bond prices,
thereby lowering bond yields
◦ Lower bond yields correspond to lower
interest rates for mortgages and credit
◦ Purchased bonds are added the Fed’s
balance sheet, which increased from $4
trillion to $9 trillion
◦ $5 trillion in debt issued to finance COVID-19
relief spending
24 0.3%
2.8%2.7%
5.3%
0%
1%
2%
3%
4%
5%
6%
Fed Funds Rate 10-yr Bond Yield 30-yr Mortgage
CSULB.EDU/ECONOMICS
Interest Rates & Monetary Policy
Source: Federal Reserve Bank of St. Louis (FRED)
Inflation caused by stimulating demand while
supply struggled to keep up
Fed is now responding to inflation by contracting
the money supply and raising interest rates
◦ Mar 2022: 0.25% increase in target rate
◦ May 2022: 0.50% increase in target rate
Plans for further rate hikes
Plans to reduce balance sheet
Interest rates have been recently rising in
anticipation of those moves
QUESTION What’s up (or down, really) with
the Stock Market?
25 26 CSULB.EDU/ECONOMICS
Stock Market
Source: Federal Reserve Bank of St. Louis (FRED)
Simplified explanations for recent stock market
volatility and decline:
◦ Uncertainty about future inflation and
interest rate hikes
◦ Uncertainty about supply chain disruptions
◦ Uncertainty about war in Ukraine
◦ Especially regarding fuel prices
3500
4000
4500
5000
Jan-22 Feb-22 Mar-22 Apr-22 May-22
S&P 500 Index
21% Decline Since Jan 2022
27 CSULB.EDU/ECONOMICS
Stock Market
Source: Federal Reserve Bank of St. Louis (FRED)
But keep in mind that the market is still
up 16% since before the pandemic
2000
2500
3000
3500
4000
4500
5000
S&P 500 Index
16% Increase Since Jan 2020
GDP & Economic Growth
28 QUESTION
Why did GDP fall last quarter?
Is our increasing demand for
imports hurting our GDP?
29 30
2.3%
-5.1%
-31.2%
33.8%
4.5% 6.3% 6.7%
2.3%
6.9%
-1.4%
U.S. Real GDP Annualized Growth
CSULB.EDU/ECONOMICSSource: US Bureau of Economic Analysis Gross Domestic Product
Low interest rates and rapid growth in
consumer spending drove strong GDP growth
Recent growth has been curtailed by
◦ Rising interest rates
◦ Expired federal stimulus programs
◦ Limits on supply chain capacity
◦ Reduced exports
◦ Reduced investment in inventories
◦ Excess inventories were accumulated in
late 2021 due to supply-chain uncertainty
31 0.5%
-7.5%
-49.2%
103.7%
30.1%
10.6% 4.3%
-0.3%
18.9%
20.5%
U.S. Real Goods Imports Growth
CSULB.EDU/ECONOMICSSource: US Bureau of Economic Analysis; St. Louis Federal Reserve Economic Data (FRED) Imports & GDP
GDP = Consumption + Investment +
Government Spending + (Exports-Imports)
How do we account for $3 trillion in imports of
consumer goods?
◦ Subtract: $3 trillion from Net Exports
◦ Add: $3 trillion to Consumption
◦ Net Effect: Zero impact on GDP
◦ Larger trade deficits only reduce GDP when
due to lower exports
Net Exports
Home Prices
32 QUESTION
Why are homes so expensive?
Will home prices keep rising?
33 34 CSULB.EDU/ECONOMICS
Home Prices
Region
(MSA)
Median Sales Price
(April 2022)
% Increase
Since January 2020
United States $404,241 35.1%
Sacramento $662,223 28.8%
San Francisco $987,222 16.9%
San Jose $1,421,444 33.9%
Fresno $428,725 22.2%
Los Angeles
& Orange
$999,916 15.3%
Riverside $579,000 37.5%
San Diego $916,268 18.5%
Source: Zillow Research; St. Louis Federal Reserve Economic Data (FRED)
2.7%
5.3%
2%
3%
4%
5%
6%
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
US Median Sales Price 30-yr Mortgage
35 CSULB.EDU/ECONOMICS
Home Prices
Source: Zillow Research; St. Louis Federal Reserve Economic Data (FRED)
2.7%
5.3%
2%
3%
4%
5%
6%
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
US Median Sales Price 30-yr Mortgage Loan amount for a 30-yr loan with a $3,000 monthly payment
◦ 3% interest rate: $712,000
◦ 6% interest rate: $501,000
Housing Prices have been rising due to
◦ Low interest rates
◦ Limited housing supply during pandemic
Prices should fall (or slow) as interest rates rise
◦ Recent price increases suggest a persistent
housing supply shortage
Answers to Frequently Asked
Questions about the Economy
Nick Schultz
City of Long Beach
Seiji Steimetz , Ph.D.
California State University, Long Beach
June 21, 2022
Long Beach City Council
Economic Development & Finance Committee Meeting