May 22, 2023 – Every Quarter, the Los Angeles County Economic Development Corporation’s (LAEDC) Institute for Applied Economics provides a briefing on the current state of the regional economy. These briefings offer valuable insights and analysis on the region’s current issues in the coming months.
The GDP, Unemployment and Inflation
Because the US Federal Reserve is a significant driver of economic performance nationally and locally, examining its forecasts for GDP and unemployment is informative. The Federal Reserve expects slower economic growth nationally in 2023, with real GDP at 0.4 percent, compared to real GDP growth of 0.9 percent in 2022. GDP will pick back up in 2024 and 2025, eventually settling at a 1.8 percent annual growth rate, assuming no economic shocks and appropriate monetary policy is followed.
The Federal Reserve expects unemployment nationally to jump to 4.5 percent in 2023, up from 3.6 percent in 2022. This increase is attributed to the Federal Reserve’s efforts to slow the economy to rein in inflation. Unemployment is expected to linger around 4.6 percent in 2024 and 2025, with the expectation that it will eventually settle at around 4.0 percent over the longer term.
Inflation has moderated because of the Federal Reserve’s series of interest rate hikes begun early in 2022, with core inflation (as measured by the Consumer Price Index excepting food, shelter and energy) now at 3.7 percent. This remains higher than the Federal Reserve’s stated target of 2 percent inflation, suggesting that higher interest rates will remain with us for some time. Accordingly, the Federal Reserve Bank of New York now estimates a 68 percent chance of the nation entering a recession sometime in the next 12 months.
The US Debt Limit
The standoff over the US debt ceiling is hanging over the country, with a debt ceiling resolution needed by early June to prevent a default on the nation’s debt. A default would mean that the country would not have enough money to pay its bills and would have to prioritize payments; this could mean payments to bondholders at the expense of payments to social security recipients or federal contractors.
Given that so much financial activity worldwide relies on a stable dollar, a default could devastate the economy. Moody’s Analytics forecasts that even a short default of no more than a week would be enough to push the US into a recession, with job losses and a rise in unemployment rates.
Los Angeles Regional Economy
Focusing on Los Angeles County, the area recovered all payroll jobs lost due to COVID-19 by November 2022, or around two and a half years. Despite recovering the absolute number of jobs, however, today’s jobs look somewhat different. Additional gains were made in essential industries and those allowing remote work, such as Health Care & Social Assistance and Professional & Business Services. Additional losses occurred in the hospitality sector and non-essential industries.
There were 29,800 nonfarm jobs gained in April 2023 alone, meaning that today the County exceeds its pre-pandemic employment levels by 2.1 percent. The Health Care & Social Assistance and Arts, Entertainment & Recreation industries led the growth in April with a combined 14,800 jobs.
Year-over-year job growth reveals that most industries are in a much better position than last year, with Health Care & Social Assistance leading the way, adding nearly 40,000 jobs. However, Motion Picture & Sound Recording has noticeably slowed now that backlogs relating to the pandemic have been worked through.
Writers Guild of America
The ongoing labor dispute between the Writers Guild of America (WGA) labor union and the Alliance of Motion Picture and Television Producers (AMPTP) could negatively impact Los Angeles’s economy. Negotiations overwork and compensation for writers in an environment seeing the increased use of Artificial Intelligence (AI) reportedly have made little progress to date, which have been complicated by the introduction of new players in this year’s talks—streamers like Amazon, Apple and Netflix—compared to years past. A protracted strike would eventually impact businesses across the industry’s supply chain.
In summary, Los Angeles County’s job market has recovered well, but there are still areas of concern, such as the potential negative impact of a Writers Guild of America strike. It is worth noting that while the number of jobs has recovered, these jobs look different from pre-pandemic times, with essential industries and those promoting remote work taking a leading role in job growth.