Higher unemployment and inflation put San Diego economy in 'danger zone'

S1: Welcome in San Diego. It's Jade Hindman. Today we check in on our regional economy. San Diego holds the nation's highest inflation rate just as its jobless rate hits a four year high. We'll talk about the daily impacts of that. This is KPBS Midday Edition connecting our communities through conversation. Thanks for joining us. It is August 19th , and as of today , San Diego has the highest inflation rate in the nation. That's according to recent data from the U.S. Bureau of Labor Statistics Consumer Price Index. In case you're wondering where these numbers all come from. Meanwhile , San Diego's unemployment rate is just over 5%. That's the highest level since 2021. Daniel and Mark is chief economist at the Policy and Innovation Center. He joins me now to talk about what these latest numbers mean for you. Daniel , welcome back to the show.

S2: Thanks for having me.

S1: Glad to have you here. So for July , San Diego's inflation rate came in at 4% while the nation's rate was just at 2.7%.

S2: That's what we consider price stability. 2.7% is a lot more than 2% , you might think 0.7 percent. Who cares ? But that's actually percentage wise that is a big , big difference. Like how many people.

S1: Or I mean like I don't know. Yeah.

S2: Yeah. I mean , the way the , the the other day I was thinking about , um , uh , assessing , uh , San Diego's unemployment rate and , you know , like we were saying , oh , this is like 20% higher than we would expect it to be. And I was thinking , you know , 20%. That's like the difference between an average height man and Shaq. Right. Like okay. Like these small different. You might think oh , that's a small difference. Like these are big differences. Right. Like and and the economy all comes down to single percentage points. You know , um , the difference between a 5% and a 6% growth rate is a big difference. And it's a difference in people's lives. Right. And that's the thing that's always really important to remember is the economy is not just a bunch of numbers and theories. It's people's lives , people's families.

S1: Well , was the jump of surprise to you ? Yeah.

S2: So the so both unemployment and the inflation are are bad news. And and I maybe wasn't shocked by getting bad news given the direction that our fiscal policy is going from the federal government. But but the scale of the bad news was , was pretty bad. So the unemployment rate in June , um , increased more than it has ever increased in June , um , since we started collecting the data in 1990. So that's that's not great. And then in July , it was again higher than average for July. Um , so we're we've we've gone from a situation where we had 4% unemployment to 5.2%. That's a huge leap. It's a very big difference. And it's a leap above what the what economists would call the natural rate of unemployment or the non accelerating inflation rate of unemployment or the non cyclical rate of unemployment. There's a lot of different terms and this gets kind of arcane. But basically we think that full employment looks about like for 4 to 5% unemployment. Um when we get to 5.2% we're saying , hey , this is actually above and beyond what we would just expect from people transitioning in their careers and doing all the kind of normal stuff that people do. So we're we're in the danger zone. And then when you add on to that , that we've got 4% inflation. Now we're looking at a real problem and I don't want to overemphasize the role that the federal government plays because it does play a really big role. But in this case , one of the driving factors behind our particularly high inflation rate was childcare. And a lot of that comes down to state policy and local housing policy. You know , the fact that that real estate is so expensive and that there are so many regulations on childcare , um , makes it really tough to run a run , a business that isn't going to , you know , run you into the ground , uh , providing childcare. Wow.

S1: Wow. Well , um , while we're talking about it , I mean , San Diego's unemployment numbers , they continue to climb , as you mentioned , but you emphasize that those numbers go up and down depending on the time of year.

S2: And so what we do at the Policy and Innovation Center , when we're when we're analyzing these numbers , is we we implement a seasonal adjustment. And so we don't just take the numbers on face value. We say , okay , taking the last ten years of data , we're going to adjust the change or the or the level of unemployment given the time of year. So June and July are both not great months for the San Diego economy in general. That's that's typically been the case over the last decade , and largely because teachers get laid off at the end of the school year and hired at the beginning of the school year. So often we see a significant drop in local government , education , state government , education , private educational services. These are all industries where where we see loss of jobs. And we did see those loss of jobs. That's normal. But even after adjusting for for seasonality , what we found is in the last four months , the unemployment rate , the seasonally adjusted unemployment rate has increased every month.

S1: What other factors do you think are contributing to that here in San Diego.

S2: That's a great question. Um , you know , one of the things is that , uh , San Diego is particularly. Um , I mean , all of America is is subject to to negative impacts of some of the federal policy around immigration and around tariffs. But San Diego is especially so because of our border town. Um , when there is this immigration crackdown and these raids that happen at workplaces , uh , people don't want to come to work if they're afraid that they're going to get picked up and deported for showing up at work. And , you know , that's really tough because that's law abiding people who are living here who are working and who are paying taxes. And , um , what we what what was found in a recent UC Merced study was that the , the people leaving work because of these immigration crackdowns was on par with the Great Recession , um , in California , because there are so many people who feel afraid to go to work. So that's a big problem in terms of immigration policy. The second problem is tariffs , right. And so , uh , the kind of classic , you know , econ 101 explanation of international trade is , you know , I sell you bananas and you sell me apples. Right. But actually , the way that trade works today is that there's this incredibly complex supply chain of interdependent companies that are producing goods , and and those goods might go across the border many times. In fact , the regional EDC estimated that that a typical medical device , um , component might , might cross the border eight times. Right. And if every time it's getting taxed that the US company that's importing is getting taxed , that's a huge hit to our economy , right ? And so , um , the fact that we're relying on trade , the fact that we have , you know , 25% of our , our neighbors are are not us born , are immigrants. Um , means that we're just particularly vulnerable to some of the , uh , developments in federal policy.

S1: When you talk about federal policy , it doesn't sound like this is going to be sustainable for San Diego.

S2: Um , I , I so work so hard to try to resist , uh , bringing out my crystal ball because , uh , no matter how smart you are , uh , just nobody knows the future , and you never know. Maybe there'll be such a dramatic increase in productivity through the adoption of AI that we're just going to grow our way out of this problem. You know , who knows ? Or maybe some other negative thing will happen. We'll get some other headwind that makes things even tougher. Right. So it's hard to know. I would say , um , the possibility of a recession is not a distant one. Um , it's a realistic scenario. Um , and , and I think that , you know , San Diego , our , our private and public sector and our nonprofits , you know , all the , the leadership in San Diego needs to come together and think about how do we create the next generation of growth and of success in San Diego. And , you know , we've done that before with the transition to biotech , which has been an incredible boon for our county.

S1:

S2: I mean , really , just right now , it's important to have a job that you feel secure in that where you've got some job security. Because if you lose a job during a recession , the duration of unemployment you're going to experience is much longer than if you lose your job during an expansion and economic expansion. And so , um , you really want to avoid losing a job during the depression. During a recession. Now it's a small number of additional people who are going to lose a job during a recession. It's not that , oh , tons and tons of people are out of work. It's more that the people who are out of work are going to struggle to find their next job. So what I would do is I'd encourage anybody right now who is , you know , looking for work or interested in looking for work or maybe concerned about their place at their current job. Go out and hit the street right now.

S1: Great advice. Daniel Newmark is chief economist at the Policy and Innovation Center. Daniel , thanks so much for your insight. It's always great to have you on.

S2: Thanks for having me.

S1: That's our show for today. I'm your host , Jade Hindman. Thanks for tuning in to Midday Edition. Be sure to have a great day on purpose , everyone.