Virus-induced recession could hit California hard

State’s hospitality, tourism, leisure, transportation industries vulnerable

The Bay Area, long one of the world’s mightiest growth engines, could be headed for a coronavirusinduced recession, as shelter in place orders shutter stores and bars, construction grinds to a halt, and the tourism and hospitality industry all but disappears.

This week, UCLA Anderson Forecast issued its first revision to its quarterly report in its 68-year history. Despite a strong start to the year, it’s now predicting two quarters of negative economic growth nationally — enough to be considered a recession — and for the economy to take until 2022 to be fully recovered. California, according to the forecast, will be harder hit, with a projected 280,000 jobs lost in the state. And that’s not even accounting for the shelter in place order imposed on Monday throughout the Bay Area.

“We’re in uncharted territory as to the economic effects of the measures being taken to control the spread of this pathogen in the Bay Area,” said Jerry Nickelsburg, director of UCLA Anderson Forecast.

The forecast predicts unemployment in the state will reach 6.2% by the end of the year and average 6.6% during 2021. The January statewide unemployment rate was 3.9%, according to the California Employment Development Department. Personal income, adjusted for inflation, is expected to stay basically flat until 2022.

Not everyone is convinced about the worstcase outcome for the region, though.

“This is business delayed, not business canceled,” said Chris Thornberg, founding partner of Beacon Economics. “At least not yet.”

UCLA Anderson projects California will be hard hit because it has a large presence of the industries likely to be most affected by coronavirus, Nickelsburg said. That includes hospitality, tourism, leisure — bars, restaurants and entertainment — and warehousing and transportation.

There are about 165,000 warehouse and transportation workers in the San Jose and San Francisco metro areas alone, which covers the five-county Bay Area plus San Benito County, according to 2018 data from the U.S. Census Bureau. Another 313,000 work in leisure industries including arts, accommodation and food services. About a third of the job losses projected in the state by the UCLA Anderson Forecast will come from those industries.

Chris Hoene, executive director of the California Budget & Policy Center, is particularly worried about those workers because they tend to be lower paid. Other vulnerable populations she’s watching for are those who are at risk of being homeless — for example people couch-surfing with friends — and undocumented residents who can’t access all the same public benefits.

“My fear is that those folks will then become economically unstable for a much longer period of time, they’ll be less able to recover quickly,” Hoene said.

“We could see an increase in the state’s already high levels of homelessness. We could see an increase in the poverty level.”

If those workers aren’t able to recover quickly it could make it harder for the whole region to recover, she said.

Ted Egan, chief economist at the San Francisco Office of the Controller, said some Bay Area businesses are also being affected by the potentially long-lasting damage the outbreak has done to the global supply chain.

“I think that there’s some types of business — you think about takeout and delivery services — that people will turn to when they can’t turn to their retails in person,” Egan said, which could include tech companies that do deliveries like DoorDash or online shopping like Amazon.

But in a recession where the financial system is in trouble and consumers are suffering, not even those businesses will be safe.

The Bay Area’s construction industry also is affected, with all but a few essential jobs at hospitals and public transit being postponed, said Daniel Romero, assistant business manager for electrical workers union in Santa Clara County.

“One guy called me, he was almost in tears yesterday,” Romero said. “He barely got back to work and the job was shut down.”

It’s hard to know if all building has stopped — housing construction is considered an essential service that will be allowed to continue — but Romero said he’s directing his members to file for unemployment if their job is shut down or to access the union’s disability benefits if they test positive for COVID-19. In the meantime, the union has closed its apprenticeship program and is down to a skeleton crew.

“The unknowing I think is the hardest part,” he said. “We’re complying, so we’re just doing the best we can.”

For those hoping that at least a recession might bring down the region’s sky-high home prices, research suggests that might not happen, according to a Zillow analysis of past outbreaks.

During the SARS epidemic, Hong Kong’s home prices stayed basically the same but the number of home sales declined by as much as three quarters.

Although most forecasters are predicting shortterm economic declines, not everyone thinks the region is headed toward a recession.

“Everybody take a deep breath,” said Thornberg of Beacon Economics. “Shutting everything down right now is a way of preventing a problem, not causing a problem.”

He compared the outbreak to natural disasters like hurricanes or earthquakes, which cause temporary disruptions but aren’t a sufficiently long-term shock to tip the economy into a recession. He said it’s possible we’ll have one quarter of negative economic growth, but that’s it.

But all forecasters and experts agree on one thing: The economic damage done by the pandemic will be determined by how long it lasts and how quickly it is brought under control. In announcing its revision predicting a recession, UCLA Anderson Forecast included an important caveat.

“If the pandemic is much worse than assumed, this forecast will be too optimistic,” it said.