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Report points to economic rebound in coming months
sign to restaurants
Downtown restaurant owners are trying to keep hopes alive as they post a sign along the frontage road directing traffic to their establishments.

How quickly the region’s economy recovers from the coronavirus pandemic depends entirely on how well the community follows public health guidelines, according to one local expert.

The San Joaquin Valley Business Forecast report was released by Stanislaus State last month, detailing the extreme economic hardship occurring in Central California due to the COVID-19 outbreak. The pandemic is referred to as a “Black Swan” in finance literature because of its extremely rare and devastating nature, according to the report’s lead author, Foster Farms Endowed Professor of Business Economics Gökçe Soydemir.

As businesses throughout the Valley begin to reopen following a three-month shutdown mandate from the state, an economic recovery is expected during the second half of 2020 — as long as a spike in coronavirus cases doesn’t cause them to close once more.

“We’re just seeing places beginning to reopen, which we indicated in the report would happen in May or June,” said Soydemir. “From that standpoint, we’re on track and seeing an increase in economic activity. It’s only partial, but it’s going in the right direction. The worry I have is that when I go out, I see a lot of people not wearing masks and I think that’s a big problem.”

The Valley has been slow to adhere to mask recommendations compared to other regions, Soydemir added, like the Bay Area. On Thursday, Gov. Gavin Newsom mandated that all Californians are required to wear face masks in public — one day after the state registered a record spike in coronavirus cases.

Soydemir said countries that have slowed the curve of coronavirus cases and thus seen their economies begin to recover, like South Korea and Japan, all have one thing in common: the widespread wearing of masks. In a new study by the University of California, San Diego, trends show that mandated mask coverings in Italy and New York City between April 6 and May 9 significantly reduced the number of infections compared to social distancing and shelter-in-place measures.

Soydemir said the best way to see the local economy prosper once more is by contributing to its recovery safely, especially as the Valley sees a recent increase in cases. 

“You want to be part of the solution, not the problem,” he said, adding that stores in some states are closing for the second time as cases surge. “We have to be responsible in order to get rid of this virus in a quicker manner.”

Soydemir’s report indicates that any delay or restart in the reopening of the economy will alter the timing of its recovery. Prior to the pandemic, the fall 2019 Business Forecast had already predicted a decline in local economic activity for the first time in the report’s nine-year history. Had the pandemic not occurred, Soydemir said, the Valley would still be experiencing significant employment loss this year compared to previous years.

“The unemployment numbers wouldn’t be as large because it’s exceptional right now, but we would definitely see a lower employment this year than the year before because the economy has been slowing for quite some time,” Soydemir said.

The combination of the virus and the downturn already taking place caused the predicted magnitude of the recession to be significantly exceeded. The national unemployment rate is expected to grow between 15 and 30 percent in the second quarter, and the Valley’s unemployment rate is generally double that of the rest of the nation. In addition, the region’s recovery is expected to be a bit slower than the nationwide rebound due to the less-developed structure of its labor markets. 

Categories of employment in the Valley that have been hit the hardest by the pandemic include leisure, hospitality and retail services, while education and health services have been impacted the least. In addition, the Valley’s ag-centric sectors are impacted less than other categories of employment.

Projections point to a recovery with an annualized growth of 1.05 percent in total employment from the second half of 2020 to the first half of 2021, falling behind the Valley’s typical growth of 1.19 percent. However, projections also anticipate that from the second half of 2021 to the second half of 2022, total employment will exceed typical growth at an average rate of 1.26 percent. 

Despite having anticipated a quick V-shaped recovery curve in March, Soydemir said he now anticipates the Valley economy’s rebound to resemble a slower, U-shaped curve if the public continues to reject mask mandates.

“That's what’s critical. If everyone does what they’re supposed to do as individuals, I think this recovery is going to take place at a faster pace,” he said. “I keep saying this over and over again: we have to be smart about this. The economy depends on us and how we respond to the virus.”