California lockdown’s job losses spell trouble for the nation

California’s second round of coronavirus-related shutdowns, among the nation’s strictest measures, are already causing pain for the most populous state’s labor market and portend a deterioration in the overall U.S. employment picture for July.

When Governor Gavin Newsom announced on July 13 that indoor operations at businesses including salons and gyms would close to curb the resurgent virus 一 cases in the state have doubled in the last month 一 owners scrambled to figure out whether they could stay open. Some establishments, particularly restaurants, took advantage of outdoor space, but many closed completely, causing workers to be laid off a second time.

Jessica Van Auken, a hair stylist at Define Mi Hair Salon in San Diego, was finishing her final appointment on July 13 when her client received a text message about the state’s new shutdown measures. Suddenly, her last client of the day became her last client for the foreseeable future, and she found herself applying for unemployment insurance for a second time since March.

Van Auken, who works as an independent contractor with the salon, is still waiting for her most recent unemployment claims to be processed, but she expects to receive less than $200 per week. The extra $600 a week in federal unemployment benefits expired on July 31, with the White House and lawmakers wrangling over an extension.

“I never thought I would be at about $100 a week,” said Van Auken, 32. “Clients have asked for house calls. This time around that might have to be an option for me.”

The renewed job losses in California, such as Van Auken’s, might have a preliminary impact in the July U.S. jobs report due Friday 一 and an even bigger effect in August.

Analysts are expecting a sharp slowing of job gains, with payrolls projected to have risen 1.5 million in July following 4.8 million in June. The unemployment rate probably declined to 10.5% in July from 11.1%, according to a Bloomberg survey 一 still triple pre-pandemic levels. The Labor Department will release the monthly jobs numbers on Friday.

Surging Claims

California reported 3.17 million continuing unemployment-insurance claims in the week ended July 18, up about 464,000 from the prior week and more than double the second-highest total in New York, according to Labor Department figures. At the same time, job postings in California as of July 24 were down 23% compared to January, after turning positive in late June, data from Opportunity Insights show.

In Sun Belt states like Florida and Texas, where virus cases have also been surging, bars were ordered to close in late June, but indoor operations at most other businesses have remained at least partially open since initial lockdowns were lifted.

It’s not just places like restaurants, though. California is also seeing permanent layoffs in the government and information technology sectors, pointing to longer-term challenges for the state’s labor market, said Sarah Bohn, vice president of research and a senior fellow at the Public Policy Institute of California. If a similar trend is taking place in other states, the July jobs report could be weaker than expected, she said.

“Over time, this is turning from a strange virus-induced recession to something more secular,” Bohn said.

California also accounts for the largest number of permanent business closures in the country since the pandemic began, according to a report from Yelp Inc. That contributes to long-term job losses because there are so few openings available.

Louis’ Restaurant, an 83-year-old diner in San Francisco’s scenic Land’s End, decided to close for good in July, putting an end to the months-long wait for its roughly 15 full-time employees to hear when they might be able to return. Many had worked there for more than a decade, said Tom Hontalas, a co-owner and grandson of the restaurant’s founders.

While the diner’s employees were getting by on unemployment benefits, Hontalas said he doesn’t know how they’ll find jobs again.

“That’s going to be tough because there’s 30 million people out of work that are also probably looking for work,” Hontalas said.

Future Unknown

Even businesses that have taken advantage of outdoor space to stay open are wary of an uncertain future. Tower 13, a sports bar and restaurant in Cardiff-by-the-Sea, California, near San Diego, has been using part of its parking lot to seat guests.

While that’s helped keep employees on the payroll in the short term, Tower 13 gets most of its revenue in the fall and winter from customers watching sports inside, and it’s unknown whether indoor operations will be allowed at that time.

“Even though San Diego is known for good weather, it still rains and gets cold,” said Tower 13 co-owner Doug Wetherald. “I’m nervous of what will happen after the summer.”

While California’s economy is suffering now, stricter lockdown measures may be better for the state’s economy in the long run if enough people take necessary precautions to get the virus under control, said Nicholas Bloom, an economics professor at Stanford University.

“At this point the virus is king,” he said.