A combination of inflation, high interest rates, and tech layoffs have some economists worried that a nasty California recession is brewing, though the downturn may be limited to commercial real estate landlords and people who made bank during the pandemic.

You’re currently seeing a nonstop loop of San Francisco “doom loop” articles in the Chronicle, which seems odd, because San Francisco's unemployment rate is currently at a terrifically low 2.9%. I’m pretty sure things were way worse when the pandemic had the city’s unemployment rate higher than 12%! Meanwhile the New York Times, which loves to bash the SF Bay Area when they have a chance, just published its own kind of California “doom loop” analysis over of the national factors of inflation, high interest rates, and the stock market downturn, combined with California variables like tech layoffs and economic fallout from this winter’s storms.

Mind you, California is still by many accounts the fourth largest economy in the world, statewide unemployment is just 4.3%, and I can think of 49 other U.S. states that would love to be the economic powerhouse that is California. But it’s hardly reassuring that the state is looking at a deficit again, of $22.5 billion. That’s not historically so bad (Governor Gray Davis ran a $38 billion deficit in 2003, a time when the state’s GDP is far smaller, and we all survived). But it’s still a shock when you said you had a $108 billion surplus a year or so prior, highlighting the risks of California's boom-and-bust economic cycles — Newsom referred to the charts of deficit and surplus as looking like "an EKG."

“The tech sector is the workhorse of the state’s economy, it’s the backbone,” Loyola Marymount University economics professor Sung Won Sohn told the Times. “These are high earners who might not be able to carry the state as much as they did in the past.”

You’re aware there have been massive tech layoffs, though that still seems contained to companies that made bank during the pandemic and grew way too much. Though the Times also points out a 36% global decline in venture capital investment, which hits California disproportionately hard, and the Times adds that information sector employment has “declined by more than 16,000 from November to February.”

There are other troubling factors outside the tech industry. Disney had 7,000 layoffs in February, which is one example of how Hollywood is being affected. The Times also adds that “California’s robust supply chain, which drives nearly a third of the state’s economy, has continued to buckle under stresses from the pandemic and an ongoing labor fight between longshoremen and port operators up and down the West Coast." They add that “Cargo processing at the Port of Los Angeles, a key entry point for shipments from Asia, was down 43 percent in February, compared with the year before.”

Thus far, the layoffs are not spreading beyond the tech industry, and the financial pain seems to be most severe for the commercial real estate industry. Those sectors have lived lavishly for about the last decade, so a correction is not out of the ordinary, and plenty of us have had it tougher than them. But the Times does add that UCLA economic forecasters have considered several scenarios wherein the financial pain spreads beyond tech and commercial real estate.

And frankly, it’s kind of encouraging that the Times concludes “Regardless of which scenario pans out, California’s economy is likely to be better off than the national one.”

Related: Study Ranks San Francisco Dead Last In U.S. for Downtown Economic Recoveries [SFist]

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