Irvine: Focused on Economic Recovery
Friday, January 08, 2021
By Bryan Starr, President and CEO, Greater Irvine Chamber
As published in the Dec. 21, 2020 issue of Orange County Business Journal
To say this year has been a challenging time for the economy is an understatement. During the Greater Irvine Chamber’s Economic Forecast event last January, University of California, Irvine’s expert economist Chris Schwarz warned of “black swans” as potential disruptors for the perfectly healthy economy we enjoyed in what seems like a world away today.
As it turned out, a magnitude of black swans swooped in on the coattails of COVID-19. The economy went from bustling in February to bust in March as COVID took hold. And, economic conditions continue to be dire for many.
With Irvine as the economic center of Orange County and groundwork laid for economic resiliency by the visionary Irvine Master Plan six decades ago, we have good reason to be more optimistic than other cities about our economic recovery from this crisis. While there is some good news amidst the downfall, it would be wise to acknowledge and learn from some of the more sobering facts.
Schwarz tells us data from TSA and OpenTable measuring traffic at airports and restaurants clearly documents the dramatic changes the economy went through from February to March. While travel and dining took its biggest hit in March, as graph one shows, economic activity in those sectors is, to date, more than 60% depressed over this same time last year.
The impact of the economic stoppage has had far-reaching effects on the national, state, county, and Irvine economies. Schwarz tells us that in the first quarter, gross domestic product (GDP) declined 5%, while in the second quarter, it fell at an annualized rate of 31.4%. This was faster than any decline during the Great Depression. Business naturally responded by cutting employment. See graph two containing the unemployment rates for the nation, California, Orange County, and Irvine.
Unemployment levels went from record lows in January to levels higher than the 2007-2009 financial crisis in April. Largely, all of these unemployment levels moved in tandem. Given the size of California and Orange County, Schwarz says they are always likely to follow the same trends seen nationally.
No sector has been hit harder than restaurant, hotel, and tourism. With its major theme parks and beautiful natural attractions, ever important to the Orange County economy is leisure travel. According to the 2019 Visitor Impact report conducted specifically for Irvine by Dean Runyan Associates on behalf of Destination Irvine, there were 5,860 travel industry jobs in Irvine alone last year. A staggering 36.2% of those were lost as a result of COVID-19 as of October.
While Orange County cities more heavily dependent on tourism may experience a slower recovery, Irvine brings in a relatively high percentage of business travel, which hasn’t fallen as dramatically as leisure travel. This category of travel will also rebound sooner as the economy gets going again and business travel resumes at more normal rates, putting Irvine at the front of the line for recovery in this area.
Overall, Irvine’s pre-COVID workforce was estimated at 276,000. Of that, 12,610 jobs were lost to COVID-related layoffs and furloughs. About 5% of those are now permanent.
All in all, Irvine has fared relatively better than other local and national areas in this economy. Why? Two reasons.
The first reason is the education level of the average Irvine resident compared to other locations. 69% of Irvine residents have a bachelor’s degree or higher, dwarfing the country’s rate of 32%, California’s 33%, and Orange County’s 40%. Education is incredibly important in the new economy, as many jobs require a college degree. To demonstrate the importance of education, graph three shows the unemployment rates of those with less than a high school degree, with only a high school degree, and with a college degree or higher.
The pattern is always the same–more education leads to better employment chances. Importantly, it also reduces the risk of unemployment during recessions. In both of the last two recessions, unemployment spiked much more for those without a college degree. Schwarz says this is especially true of the 2020 recession due to the nature of the industries hit the hardest—low-wage and unskilled labor sectors.
“UC Irvine focuses on helping fulfill the American Dream. In 2020, more than half of UC Irvine bachelor’s degrees were awarded to first-generation students,” Schwarz said. “The Paul Merage School of Business’s Center for Investment and Wealth Management’s Pacific Life LIFEvest program has similar goals for 9th and 10th graders from the underserved community.”
The second reason Irvine has fared relatively better in this economy is that Irvine benefits from innovative industries based in the city. Many high-tech companies call Irvine home, such as Broadcom, Ingram Micro, and Western Digital. BioTech and MedTech companies are also well represented with Allergan, B. Braun, Edwards Lifesciences, and NextGen Healthcare. These types of industries are part of the new economy that focuses on technology and health care. These companies are finding solutions to health and remote working challenges we face. Our growing direct patient care status, led by City of Hope, Hoag, Kaiser Permanente, MemorialCare, UCI Health, and others, poises Irvine to meet head-on the healthcare challenges and demands for treatments and cures we face.
As we head into 2021, the economy should continue to improve as the COVID crisis hopefully abates with the rollout of several vaccines and treatments developed worldwide and right here in Irvine.
However, the question is, can we grow our GDP as quickly as many are predicting? Are there any other black swans on the horizon for which we need to prepare? Will the stock and housing markets continue to soar in 2021? Join us on Thursday, Jan. 28, at noon, as Chris Schwarz discusses these issues during a live-streamed presentation of the Greater Irvine Chamber’s 2021 Business Outlook.
Category: Economic News, Economic Forecast, OCBJ, Bryan Starr, Events