Inland Empire economy stepped backward in July

It probably did in August, too, but it's a little too early to tell

Some news, as promised. I want to keep the core spirit of this newsletter as a weekly economic update. As my skills and interests expand, I am able to generate twice-a-week posts. Thus, starting this week, one post will be the regular, local economic updates. These will now be published on Tuesdays. The second post will be some kind of special topic - this week it’s about commuting times - and will come out Fridays. As always, please share the newsletter and tell others about this exciting addition. Thank you for your support!

Back in August, I wrote that a dip in consumer demand and a slight uptick in unemployment insurance claims might be early signs of a worsening summer labor market. The July numbers out from the BLS from a few weeks ago suggest that this was indeed the case. After a number of months of closing the gap between current employment and the pre-pandemic trend, the Inland Empire’s labor market slipped backward last month and will probably continue to do so in August as well.

The above graph suggests a reversal in the labor market’s recovery. We are back to being less than halfway toward a return to pre-pandemic trends in employment. It is a clear sign of the impact that the Delta variant has had, and is having, on economic recovery.

The good news is that if we compare the current slip to the last time we had one – around late-2020, very early-2021 – it does not appear to be as dramatic. (I am comparing the drop of the green line now to the one from early 2021.) This makes sense, since at that time there was not a full rollout of the vaccine to strengthen economic expectations. You should also note that other regions in Southern California are going through the same pattern, so our experience is not unique. Los Angeles metro’s data shows the same worsening pattern in July.

The reason I think the labor market will continue to step backward in August is because the indicators that I am able to track through August already – consumer spending from Affinity Solutions (through Cambridge Analytics) and new unemployment insurance claims – are showing those signs.

September might already be shaping up to be better. Even for the last week of August, we saw a sharp decline in unemployment insurance claims – see the above chart. It’s too early to tell whether this marks consistent improvement, or is just a blip on the “radar”.