Marked Differences Between Northern/Southern California
TASI Bank announced the results of a comprehensive study conducted in conjunction with the San Francisco Business Times that measured the confidence levels of small and medium-sized about economic conditions in Northern and Southern California.
“What’s interesting is this dichotomy between the national opinion and the local situation”
While participants shared many common apprehensions, significant differences existed between the Northern and Southern California respondents’ opinions.
“Coming off the difficulties that many businesses faced at the peak of the COVID pandemic,” said Dave Joves, president of TASI ® Bank, “what was surprising was the level of confidence that the respondents had in the expected recovery and success of their own enterprises. At the same time, we believe that many businesses are being cautious.”
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A total of 323 business professionals across San Francisco and Los Angeles participated in the survey, including business owners, executives, and other local professionals. Their companies ranged in annual revenue from less than $1 million to over $50 million, with employment from less than 10 to more than 100. They represented a broad range of industries, including 26% in real estate, construction, and architecture; 18% in professional or business services; and more than two dozen others, including automotive and hospitality to business segments.
Key takeaways from the survey
- Despite having low confidence in the overall economy, most executives have strong confidence in the success of their businesses.
- Business leaders are focused on growth.
- They believe that inflation will impact their companies most in the coming year.
Dr. Christopher Thornberg, a Ph.D. and economist at Beacon Economics, joined Joves to discuss the results which were presented at a conference hosted by TASI Bank. Thornberg noted that waves of job cuts coupled with inflation and interest rate hikes tend to cause people to lose confidence in the economy. “It’s not surprising executives don’t have a rosy view of the local, state, or national economy,” he said.
Many businesses still see positive signs ahead. Unemployment remains low, and demand for goods and services is strong. However, Wall Street and Main Street have very different views of the economy.
“What’s interesting is this dichotomy between the national opinion and the local situation,” Thornberg said. “When I talk to businesses about what’s coming down the pike, I ask them, ‘What do you think the problem is? Where is the change? What’s unsustainable? What isn’t going to work?’
Most of the survey respondents have strong confidence in the success of their businesses. Regarding revenue, profitability, and growth, 58% said they are very or extremely confident in their business over the next 12 months. Just seven percent reported not being confident.
As a result of the inflation concerns, Joves said he is seeing hospitality, hotel, gas station, apartment complex, and commercial real estate clients raise wages to keep pace in a competitive labor market. “It’s a much different expectation than pre-pandemic,” he said.
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There are regional differences in terms of concerns. For example, the survey found that executives in Los Angeles are more likely to be concerned about tax changes than their counterparts in San Francisco. On the flip side, executives in San Francisco are more likely to say a stagnant or declining market will be a challenge for them than those in Los Angeles. San Francisco respondents also are more likely to say the labor shortage will have a fairly large or great impact on their business in the coming year than those in LA.
“They are reflecting ground-level realities,” Thornberg said. “The labor shortage is not quite as prevalent in Southern California as in the Bay Area. Housing is in short supply in Southern California but not quite as short as in the Bay Area. Southern California is just trying to keep up with overall demand.”
In Los Angeles, for example, executives are more likely to work with a large regional or national bank than in San Francisco, where relationships with local community banks are more common. But, as Thornberg remarked, “It’s a good time to have a great relationship with your banker.”
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