How healthy is San Diego's economy?

S1: Welcome in San Diego , it's Jade Hindman. You know , there are so many influences on our local economy today. We'll talk about what's shaping it and where it's headed. This is KPBS Midday Edition. Connecting our communities through conversation. San Diego County's unemployment rate shot up in June to 4.9% , up nearly a full percent from May. That news comes as the leading economic index fell in June , which raises more concerns about the overall health of the economy. Here to make sense of this is Daniel and Mark. He is the chief economist at the Policy and Innovation Center here in San Diego. Daniel , welcome back to Midday Edition.

S2: Thanks for having. Me.

S1: Me. Glad to have you here. So what's behind San Diego's rise in an unemployment.

S3: We've seen for a long time now a decrease in employment in professional and business services , which includes some very , um , very kind of high paid , advanced careers in professional technical services. Um , and it also includes organizations that help , um , run , you know , administrative aspects of other businesses. So that was our our biggest drop. And that's really too bad because that's a that's a high productivity area of the economy. It's a high paid area of the economy. Um , and so it's not great for our overall economy to be losing those jobs. Um , but , uh , what we saw was an across the board drop. Now , June is the worst month in San Diego. It's always the worst month. And so it's not surprising that we saw an increase in unemployment. But this is the largest increase in unemployment we've seen in in June in recorded data. So since 1990 , this is this is the biggest bump in unemployment we've seen.

S1:

S3: Uh , to the graduates who are entering the workforce , in an economy where maybe there's not as many opportunities as there might have been last year. Um , and I think that's the real problem is how it impacts families. Right ? You know , people tend to think of the economy as numbers and dollars and the economy as people. And so when the unemployment rate goes up , it means that there's more families who are struggling to make ends meet. But it also means when the unemployment rates are that it's typically going to be harder to find a job when you lose one , which means the duration of unemployment increases. If you lose your job when the economy's not doing quite as well , it's going to be harder to find that next job.

S1: And you know , overall , California's unemployment rate is actually higher than the national average , with ours at 5.7% , the national at 4.9%.

S3: We have a more diverse population. We have a great variety in the , um , in the amount of education that people have. We have a , um , in many ways pro cyclical economy where when it booms , it really booms. And when it busts , it really busts. Um , so it's it's really hard to isolate one particular factor that makes our unemployment rate higher than , than the national average. Um , you know , certainly somebody who doesn't like all the regulation coming out of the state government might point to that and say , that's a part of the problem , that it's not a business friendly environment. Um , it's hard to to kind of point to one particular thing. Um , But , uh , but yeah , I mean , fortunately , our unemployment rate is significantly lower than the state average.

S1: Here in.

S3: San Diego. Yeah. That's right. Yeah.

S1: All right. Well , you know , while unemployment is one economic marker , tourism is another. So , uh , here we are , middle of the summer.

S3: So , uh , we've seen , uh , employment and leisure hospitality increase and it will continue to increase probably through August , which is this typical peak. And , uh , we are within a couple hundred jobs of the pre-pandemic high. Um , so we just lost a ton of tourism and hospitality jobs during the pandemic , and it's been a rough and difficult climb back from , from the nadir , right , during the pandemic. Uh , back to where we are. And so my guess is that next month we'll see employment finally exceed its pre-pandemic high , which will be cause for celebration.

S1: Yeah , well , San Diego's hotel tax went up in May.

S3: You know , we've got a tremendous backlog in the city and and across the region in investments in things like stormwater and wastewater infrastructure and things like that. And and we really we need we need the we need the revenue. So so that's a positive thing. Of course , no industry wants to be taxed. So I'm sure that if you brought in hotel owners they might not love this. But , um , San Diego does have the third highest hotel occupancy of any major American market. It's only behind Oahu and New York City. So we are doing great in our in our accommodations sector. It's a very , very strong sector of the economy.

S1: Given that the San Diego City Council is currently considering a proposal to raise the minimum wage for hospitality workers to $25 an hour.

S3: Um , traditionally , people who don't like higher minimum wages say , you know , they imagine that maybe a business has a set amount of money to spend on workers. And if you increase the minimum wage , then they're just going to have to hire fewer workers because , you know , they're going to blow through that labor budget on a smaller number of workers. It turns out that's not really the case. If you if you look at the economics literature , the research literature typically increases in minimum wages don't lead to decreases in overall employment. There are some cases where maybe teenagers or , you know , other people who are kind of marginally employed might see fewer hours or something like that , but typically the negative impacts are not as great as we might imagine them to be. Whether this is the right policy for California is a question way above my pay grade or for San Diego. That's that's not up to me to decide , but but I would say that we have a very , very healthy accommodations industry here. And , um , you know , maybe it is the case that they cannot afford to provide excellent quality services and also pay their workers living wages , if that's the case , that's disappointing. But , um , my hope is that that that is possible. You know , $25 an hour , about $50,000 a year , right ? It's hard to make ends meet in San Diego on that. Most measures. And there's a variety of measures from MIT and the University of Washington about kind of a self-sufficiency wage , or what's the lowest wage that you can make and , and meet your basic financial obligations without government assistance for a single adult with no dependents. Typically that's going to be somewhere in 21 to $25 an hour , right ? So what we're talking about is for somebody who doesn't even have kids , who has nobody who's relying on them , this is really just enough to make ends meet. It's difficult in San Diego. You know , the cost of living is so high and particularly the cost of housing. And so I'd love to see us living in a world where everybody who's doing the essential work that that we all rely on is compensated in a way that allows them to live independently.

S1: Well , in keeping with tourism , it is Comic-Con Week in San Diego , and I'd like to talk about its impact on our local economy. Here's what San Diego convention centers Mayor and Dougherty told our John Carroll earlier this week.

S4: We see an economic impact here of more than $160 million , including the direct and indirect spending from visitors , the hotels , the restaurants , the bars , buying things at local boutiques. All of that is what goes into that economic impact.

S1:

S3: And I encourage you to go. And if you can't afford tickets or find them , that's really the hard time. Is tracking them down. Just go and hang out and see everybody dressed up outside and it's a blast. Um , but , uh , the the impact , you know , there's a kind of a typical , uh , model that people use to estimate economic impact. And , you know , it's it's hard to do these things , but a good faith estimate is $161 million is what the , the the convention center thinks it is. You know , what is $161 million ? It's kind of hard to explain , right ? Like , yeah , $1 million is about how much money fits in a suitcase. I mean , in a briefcase. Rather like a briefcase. Full $100 bills. That's $1 million. Okay. A bus full of $100 bills is $1 billion , right ? Okay. So , you know , 163 suitcases or briefcases full of $100 bills. I mean , I don't know , like , how do you imagine most of us never interact with $160 million ? So if I just throw that number out there , I mean , what does it mean ? I think on on a personal level , what it means to people in the region is that a restaurant owners and retail shops and , you know , people who are selling goods and services in the region , many of them see a big bump. And that's great. Um , and it's good for the hotel industry. Certainly. They they've got , what is it , 98% occupancy or something. Um , during , during the convention. And so , um , you know , it's it's a it's a boon to the local economy. It's not a boon to everybody. Right ? There's some people who are staying away from downtown. Locals are staying away because they know it's going to be a madhouse. Um , so , you know , it doesn't doesn't benefit everybody , but but it is it is it's wonderful for the economy. It brings in a lot of money. and , um. Yeah. I mean , I think it's also just a fun signature San Diego thing. And if you if you live here , you owe it to yourself to go down and and just enjoy the , the the show. Indeed.

S1: Indeed. Well , we can't get away from the conversation about our local economy without talking about what's happening , um , nationally. So , um , what impact is the white House having on our local economy ? Because when we last spoke , we were talking about tariffs and how that could impact San Diego.

S3: And it's still shaking out with just just recently steel tariffs rose from 25% to 50%. That's increasing not only the price of imported steel , but it's leading domestic manufacturers to increase their prices. One of the things that's really interesting is , you know , sometimes you think , hey , we could , um , we could protect the workers in this industry. If we put a tariff on goods front that are coming in from from out of the country , but often those goods , particularly like steel , are essential inputs for other industries. So while maybe you protect one person who's working in the steel industry , that could negatively impact the work that 50 other workers are doing in other industries that rely on an affordable supply of steel. And so , um , you know , that's that's that's a real challenge when you increase prices. And we had a moment of high inflation. And the real goal is to make sure that we get back to 2% inflation , which is what we consider to be stability before people start to create internal expectations that for the long term , inflation is going to be high. And so that's why the tariffs are so problematic is because they increase the price of goods. Right. Lots of articles about how Walmart has increased the prices of many of their goods. And , you know , you see steel prices going up , which results in car prices going up and all of that stuff. Right. So the the tariffs are , are really problematic because they create this challenge with inflation , which the , the , the fed has to fight with high interest rates which decreases businesses willingness to invest. So you see how it's this whole chain process right. This is how the economy works is there's this incredibly intricate chain of causality that works through the economy. And when somebody comes in and says , we're going to , you know , slap huge tariffs on all these countries , you know , you might it might not be obvious. Well , that's going to require the fed to keep interest rates high so that inflation doesn't increase. And when interest rates are high then businesses don't invest and then business don't invest. Then people don't get hired and then people don't get hired. Then they don't have money to spend. And then the economy shrinks , right. So it's hard to kind of explain in a nice buttoned up way. Sure.

S1: Sure. Yeah.

S3: Yeah. This really complex machine that the economy truly is.

S1: So much to cover here that we didn't make it all through. The questions that I had. But I know this is going to be a continuing conversation , hopefully on a weekly basis or something , so we'll definitely talk again soon. I've been speaking with Daniel and Mark. He's chief economist at the Policy and Innovation Center. Daniel , thank you so much for your expertise.

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.