In the next year or two, the two-county region is more likely to experience high inflation than a return to low unemployment, says Jay Prag, a clinical professor at Claremont Graduate University. Nationally, he’s not encouraged by what he’s seen so far of the Biden Administration.
Recovery from the pandemic-related economic slowdown probably will take longer in the Inland Empire than in other California submarkets, mostly because of the region’s dependence on travel and hospitality, a local economist predicted Wednesday.
“COVID-19 has brought a tremendous amount of economic pain to the Inland Empire, with many of our industries having been effectively closed down” said Jay Prag, professor of economics at the Drucker School of Management at Claremont Graduate University. “Hospitality and leisure, restaurants, bars, casinos and sporting events were all hurt, and many of those things – especially restaurants – closed permanently or were severely restricted.”
“A lot of those jobs aren’t coming back,” said Prag, who delivered the Inland Empire Business Daily’s 2021 Economic Forecast in an online presentation. “They might, but probably not. People might think it’s just a matter of controlling COVID and those jobs will return, but it’s not that simple.”
Prag cited Palm Springs, which he said has done a good job attracting businesses during the past few years but is now plagued by a lot of “half-finished hotels,” as an example of what the Inland Empire might be facing.
“Places like Palms Springs need people with money to spend, they need high employment and people who are wiling to spend $5,000 or $10,000 on a fancy wedding at a fancy hotel,” Prag said. “They need college graduates who are pretty sure they’ll get a job that pays them well. I don’t know how long it’s going to be before people feel that economically secure again.”
Currently, unemployment in the Inland Empire is about nine percent, up from 3.5 percent one year ago, Prag noted.
“That’s a lot of [economic] insecurity,” he said. “The Inland Empire might be able to get back to seven percent unemployment relatively quickly, but seven percent is still twice as high as it was a year ago, and a year ago is something people remember.
Not all of the recent economic news in Riverside and San Bernardino counties has been bad. The region’s housing market has been helped by COVID-19, according to Prag.
“The Inland Empire economy has had good and bad things happen to it since the pandemic hit, and some of the good things have happened in the housing market,” Prag said. “The combination of work-from-home restrictions and people leaving the crowded urban areas meant a lot of people moved into the Inland Empire, and that’s driven up home prices, some to all-time highs. If you’re a homeowner you’re in much better shape.”
“But COVID has also driven up rents, which is not good for working people.”
Prag saved some of his strongest words for his inflation forecast, saying the Inland region’s inflation rate will probably reach five percent and stay there for awhile.
“I think we have a much better chance of seeing inflation in the near future than we have of seeing significant economic growth,” Prag told his online audience. “I don’t see us getting anywhere near 3.5 percent unemployment, but we will see higher inflation than most people have ever seen.”
Prag was no more optimistic when discussing the national economy, less than one week after the U.S. Bureau of Labor Statistics reported January’s unemployment rate to be 6.3 percent .
But before he made predictions, Prag stressed the uniqueness of the current economic slowdown and the difficulty of putting together a recovery.
“The 2008 recession happened because there was a housing bubble and the bubble burst, but the slowdown we’re in now is different, and it’s unique,” Prag said. “This was a forced downturn, in that the government shut down entire sectors of the economy in order to stop the spread of a virus. As far I know, that’s never happened before.”
Anyone who believes the jobs lost in the pandemic will magically reappear, ending then pandemic, is mistaken, according to Prag.
“That’s one way to look at a possible recovery, but I think it’s mistaken,” Prag said. “The other way is to admit that COVID has become part of the economy and we have to remake the economy around that. More and more, that’s looking like the right approach, because a lot of the jobs we’ve lost are permanently gone.”
Prag predicted that unemployment will drop to no less than 5.5 percent between now and the end of year, and that we won’t experience “uninterrupted growth” during the next 10 and half months.
He also leveled criticisms at the Biden Administration’s “Keynsian” approach to restoring the economy – particularly its proposed $15-an-hour minimum wage – won’t spur a quick recovery, Prag declared.
“I’m hearing a lot of echoes of the Obama Administration, especially regarding infrastructure projects,” Prag said. “Not that we don’t need infrastructure projects, because we do, but they’re disruptive and expensive and they take a long time to plan. They aren’t going to help unemployed bartenders or people who are looking for a job in retail.