A recession is probably coming, and top economists believe it will have a major impact on San Francisco’s economic recovery from COVID, the tech workforce and the remote work.
Seventy percent of economists and 75% of Fortune 500 CEOs are predicting a recession next year, and that is backed up by the federal government’s tracker of gross domestic product, a key measure of economic activity.
What’s behind recession fears are the rising interest rates of the Federal Reserve, the central bank of the United States. The Fed is raising rates to address inflation that has driven up prices like gas, which has reached around $ 6.60 a gallon in The City, according to the American Automobile Association.
Butting up interest rates, which are designed to slow down the economy by discouraging big purchases like a home or car, can easily go too far, leading to job cuts and increasing debt for consumers.
Here in San Francisco and Silicon Valley, a cryptocurrency crash has brought down tech stocks, and companies have laid off workers. The question is whether a recession will result in a 2020 impact on the COVID-19 impacts on the economy, or the long-term like the 2008-2009 economic collapse spurred by the mortgage crisis.
The Examiner asked San Francisco’s top economist and a respected UC Berkeley economist about their answers to three key questions that San Francisco faces as a possible recession.
Will The City’s downtown continue to recover?
In The City, the economy has been slowly recovering. Restaurants and tourism, which were walloped by COVID, have just started getting back on track. Sales tax shows business is coming back, and unemployment in the city is still just 3%.
“The last few months in San Francisco are doing a bit better,” says San Francisco’s chief economist Ted Egan. “But nationally storm clouds are gathering.”
High prices are driving some consumers away, and an economic slowdown would make downtown more difficult.
“San Francisco has a huge challenge,” says longtime Bay Area economist Ken Rosen, chairman of the Fisher Center for Real Estate & Urban Economics at the Haas School of Business at UC Berkeley. “It’s a good thing we go into a recession, and the recovery gets stalled just as it was starting to look good.”
The financial district and South of Market neighborhoods are already struggling because so many workers are now working remotely.
“The ecosystem requires people to be in the office more than three days a week,” Rosen says. “The real question is whether or not those areas in startups and other companies will get more people off.”
Is the tech sector in trouble?
The San Francisco cryptocurrency company Coinbase offers a rescinded job, then laid off 1,100 workers this month. A crypto meltdown has led to dropping tech stocks. Some fear a recession in tech. But both Egan and Rosen say there are actually two tech sectors, and only one of them is in trouble.
“There’s a real need for a bifurcation and there’s a real business model that works, and cryptocurrency,” says Rosen. Cybersecurity, cloud computing and automation companies should be stable and continue to hire, he says. Cryptocurrency “was purely a Ponzi scheme. We knew it was going to collapse. Most economists agree on that. But the bubble was bigger than we saw. The tech industry loves all that free money and the speculative bubble, but the bubbles never end well, and this isn’t going to end well, ”says the UC Berkeley economist.
Egan also sees two tech sectors.
“Unprofitable tech, if you can call that a sector, has been hit very hard. In crypto and other developing sectors where you see most of the layoffs happen. But if you look at tech job listings, we still have three or four listings for every hire they make, as well as a whole. ”
A tech talent gap, probably some layoffs. For that reason, Egan thinks it’s important to look at the context of tech layoffs. “You shouldn’t look at announcements of layoffs of individual companies and say we’re a tech recession.”
How would a recession affect remote work?
There has been great debate as to whether the COVID has slowed down and the tech workers are returning to the office. Many companies are back to work midweek. But some hygiene may be no longer the norm, as some companies bring workers almost full time, while others go fully remote.
“What we have now is Tuesday. Wednesday, Thursday, ”says Rosen. “That’s the hybrid model that many companies are following. But I think they will go back to a more traditional model. ”
In a recession, employees will lose bargaining power that has allowed them to work from home, Rosen says. “Right now, there’s such a labor shortage that employers can’t really insist. But that changes if people start losing their jobs. ”
A recession is likely to increase office attendance for many companies, Rosen says. “In San Francisco, we only see about a third of the people every day. A recession would encourage people to come back. If they don’t see their boss, they’re more likely to be fired, ”Rosen says. Some research shows managers have a better opinion of in-person workers.
Egan also wants employers to have added leverage to get workers back into the office. But he says other companies will see the cost savings in scaling back office space with a recession, and the other extreme with go.
“If companies are really serious about wanting employees back in the office, a cooler labor market is going to take the leverage away from employees,” Egan says. “But other companies are saying they don’t want central headquarters and they are looking at cost savings and they are not going to change that approach.”
A recession of political impact
While a recession is still here, the impact could be significant in San Francisco and nationally. A recession could lead to political change at the highest level, some economists believe. “A mild recession in 2023 could put (an end) to Joe Biden’s beleaguered presidency, possibly helping usher Donald Trump back into the White House,” The Economist wrote earlier this month.
Rosen says that is possible. “The powers to be are often blamed for the recession. We’ve seen that happen, and that could happen again. ”