Recession is a scary word that’s been thrown around a lot in the wake of the coronavirus pandemic recovery. But should Long Beach residents expect one any time soon? Not according to local economists.
During the annual Accelerate Long Beach Economic Forum on Thursday, Long Beach-based economist Robert Kleinhenz highlighted a series of data points, including reduced inflation as well as strong gross domestic product, or GDP, and jobs numbers, that he says indicate a recession is not on the way.
“A couple of days ago, Halloween, I was dressed as the economist who kept predicting recessions incorrectly,” Kleinhenz joked.
The national GDP is growing at a little more than 2%, with the most recent growth rate at 4.9%, Kleinhenz said. And at 3.8%, the unemployment rate nationwide is below pre-pandemic levels, he added.
“You’d have to go back to the 1960s to find unemployment rates below 4% on a consistent basis,” Kleinhenz said. Nationally, unemployment has been below 4% for 21 straight months, according to the U.S. Bureau of Labor Statistics.
“That doesn’t sound like a recession to me,” Kleinhenz noted.
Across the country, Kleinhenz said, there are about 10 million job openings but only about six million unemployed people, which is the opposite of the typical trend when a recession is on the horizon.
Kleinhenz said unemployment is expected to tick up slightly as the economy cools, but such an increase is not indicative of a recession. Long Beach has already seen its unemployment rate rise from 4.6% in April to 5.4% in September, according to data from the California Employment Development Department.
Inflation, meanwhile, has dropped from a peak of nearly 9% last year to consistently under 4% for the past several months, Kleinhenz said. A major contributor to the decline is the Federal Reserve’s interest rate hikes, which Kleinhenz doesn’t expect to drop until mid-2024 at the earliest.
But strong economic indicators alone do not mean there are no challenges for the country, state and Long Beach specifically. If interest rates remain too high for too long, for example, Kleinhenz said it could have a negative impact on the economy.
“The Fed has got to be very careful … to make sure that it doesn’t push too hard on the brakes and tip us into recession,” Kleinhenz said. But even if a recession were to come, Kleinhenz predicted it would be mild.
“We may not even notice it,” he said, adding that the two most recent economic upheavals—the devastating Great Recession and the pandemic-induced downturn—are not the norm.
Long Beach’s economy has bounced back to pre-pandemic levels as well, Kleinhenz said, but several challenges threaten the balance.
Prior to the pandemic, the city’s available labor force was fairly stable at 240,000 people, Kleinhenz noted. Today the labor force appears to have stabilized around 230,000 people. Similarly, local employment levels are about 10,000 people lower, he said.
There are several factors that may contribute to labor force and employment declines, Kleinhenz said. Some people who left the worker pool to care for family during the pandemic may not have returned, while others may have retired early. Also, the average age of Long Beach residents is rising, he added.
“We want (the local labor force) to grow in the future so that it can fill those jobs that these new employers are going to create,” Kleinhenz said. “Not all of those jobs are going to be filled by people who live in Long Beach.”
In fact, in a data set of 172,000 jobs in the city, only 45,000 are held by Long Beach residents, Kleinhenz said. Conversely, more Long Beach residents work outside the city than in it.
Kleinhenz described each industry in Long Beach and its share of local jobs, and he categorized them by whether their customer base is mainly inside or outside the city; for some industries it’s a mix of both. While Long Beach needs a healthy balance between the two types of industries, those that sell outside the city (called traded industries) should be promoted to encourage growth for both the city and the region as a whole, he said.
Unsurprisingly, some of the traded industries Kleinhenz identified are the same sectors at the heart of Mayor Rex Richardson’s Grow Long Beach initiative. As the city weans itself off revenue from oil production, Richardson is pushing five industries to offset the losses: aerospace and aviation; ports and the supply chain; entertainment and hospitality (arts, culture, tourism and restaurants); health care and hospitals; and education.
Three of those sectors are what Kleinhenz calls traded or mixed: aerospace and aviation (manufacturing), ports and the supply chain (transportation and warehousing) and entertainment and hospitality (accommodation and food service, and arts, entertainment and recreation).
Of all the sectors, Richardson talks most enthusiastically about tourism and the arts—especially when it comes to music.
“We look forward to engaging in this conversation to bring music culture back to Long Beach,” he said during his remarks, noting that the city is looking into constructing a waterfront amphitheater near the Queen Mary.
“Back in the day, the Arena would have Led Zeppelin, the Grateful Dead, The Who—all those people performed in Long Beach,” Richardson continued. “But T. Swift and Beyoncé aren’t coming unless we invest in the venues to make that happen.”
But as Long Beach repositions its economy, the city and Los Angeles County are facing other longer-term issues, such as population decline and housing, according to Kleinhenz. Over the next 10 years, he said, the county is expected to lose about half a million residents, which will further constrict the labor force.
A major factor in the population decline is affordability. California has always been expensive, especially the LA region, and while Long Beach remains the most affordable beach city, the cost of living has increased significantly over the years due to a lack of housing development—an issue felt statewide.
During his remarks, Richardson boasted that Long Beach has produced more housing over the last four years than the “next nine cities in population combined” in the county. In the first half of the year, the city entitled 1,500 residential units, he said.
“If anyone tells you we’re not … pro-development in Long Beach, let’s check the scorecard,” Richardson said.
But it’s not enough, Kleinhenz cautioned. To keep up with its housing needs prescribed by the state, Long Beach needs to permit about 3,300 units every year.
Each year that it falls short, the housing gap widens—and the entire state, including Long Beach, has fallen short for decades. The tight inventory of units for rent and homes for sale continues to push prices up, Kleinhenz said.
“We have these up and coming industries—tech, logistics, aerospace—and we need young workers. But if they cannot afford to live here, … what are they gonna do?” Kleinhenz said. “Whether it’s bringing a worker from somewhere else or trying to retain our local workforce, this is the challenge we face over the next 10 or 15 years.”