Once a year, the UC Santa Barbara Economic Forecasting Project marshals its energies to deliver its best projections to a theater full of crowds in navy jackets and chinos. At $200 a ticket — a sum equal to two days’ after-tax earnings for anyone paid minimum wage — Wednesday morning’s conference provided well-informed thoughts from a Federal Reserve governor, chief economist of the city of San Francisco and the head of the university’s economic forecasting project: Chris Waller, Ted Egan and Peter Rupert.
Recent economic headlines were part of the panelists’ discussions and conversations. Regarding the ongoing debt ceiling showdown in DC, only Rupert expressed an opinion, saying it was stupid and costing the country money. He noted that similar standoffs have resulted in government shutdowns lasting from four hours to 35 days, from the days of Reagan to Trump.
Bank failures are the other bad news of the day. Wednesday’s conversation took place at the Granada Theater, which is right between ChaseBank and First Republic Bank, the former of which saved the latter from the jaws of failure last month. The mess on the First Republic’s balance sheets has been partly blamed on interest rates, which have risen from near zero before the pandemic to 5.25% today, locking in low-yield bonds at the bank .
As Fed Governor Chris Waller — who had been a researcher for the Cleveland Fed, like Rupert, before joining its board — discussed the data he had his eye on to determine whether the next whether or not the June meeting will lead to another interest rate hike. These details included retail sales, industrial production, home manufacturing, labor market, etc. He was looking at their trends — up or down — and by how much for how long, he said.
The Fed’s goal was to adjust inflation to 2%, which it saw as a goal for a growing economy. The way to do that was to raise interest rates, which governors could choose to raise, skip or suspend the increase in June, Waller said. The choice, he said, will likely depend on credit conditions and how the current interest rate affects different indicators.
Regarding the bank failures in mid-March, Waller said the events were still too recent to be reflected in data surveys. Some credit crunch has occurred since the FDIC bank takeovers, he said, but it’s not yet clear if two are related.
San Francisco shares some aspects of its economy with Santa Barbara, namely its tourism and, to a much lesser extent, its technology industry – although its population is 3.3 million compared to the city’s 87,500 inhabitants. of Santa Barbara – as well as some of the challenges, such as high house prices and a large homeless population. Ted Egan said the pandemic has taken the city’s economy down and they’ve been trying to figure out what’s happened since.
The tech industry was thought to be recession and inflation proof, but the pandemic was another matter. Technology had contributed 80% of San Francisco’s gross domestic product, he said, but all of a sudden people were working from home: The stores and restaurants they had supported downtown suddenly closed. found without customers; the public transport they had taken suddenly became unused. Homelessness has become much more evident downtown, as have empty office buildings.
What startled the public – which included many people in the real estate industry – was the news that an office tower recently sold for 80% less than its pre-pandemic value, because too much office space suddenly exists. Rents are also down 15-20%, Egan said. And for a city with a public housing goal of 8,000 units over the next eight-year cycle, San Francisco has only received building permits for 33 units so far.
Rupert spoke last, and he managed to be both fun and confusing. An economics professor at UCSB, his interests include monetary economics, labor, and criminal justice. Rupert’s blog — econsnapshot.com – contains slides similar to those he went through on Wednesday, as he demonstrated that the economy, compared to years past, was on the same slightly higher trajectory as before the pandemic. Rupert noted that his website, unlike some large journalistic firms, was precise in its use of terms and in its interpretations. He then mercilessly dissected an inaccurate New York Times article on used car prices.
Rupert delivered these lectures for a decade and clearly educated his audience during that time. He then quickly reviewed the myriad ways of looking at growth – over the previous year, the last three months, the last 30 days – concluding: “To be richer, inflation must be lower than the wage growth”. According to the charts, inflation is between 3 and 7%, and hourly earnings – as an annualized percentage change – between 4 and 6% in the black.
The employee problem for many employers, from college to Santa Barbara County, is that they cannot bring or stay workers in Santa Barbara, primarily because of the cost of housing. Thus, employment is something of an employee market at present. Compared to 2010, when each job could be held by five people, there are currently more jobs than people looking for work locally, Rupert demonstrated.
The employment charts indicated that Santa Barbara had a real problem. Although overall employment was up to pre-pandemic levels – but not by much – retail employment has stagnated since 2000. Online sales weren’t necessarily to blame; they represent 10% of all retail sales in the United States, Rupert said. More bluntly, he compared the retail business of Santa Barbara to that of Ventura. Both faltered during the Great Recession and during the pandemic, but Ventura’s retail business has recovered. That was not the case with Santa Barbara, he said, noting the closures of Nordstrom and Saks.
“Something fundamental happened in Santa Barbara,” Rupert said, leaving the mystery unanswered immediately.
