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Do Tech Layoffs Point to Bay Area Recession?

“As the large companies scale back their spending, that affects the market for the startups. It’s getting harder and harder.”

Each day seems to bring news of another set of tech layoffs. But with so many of those companies still concentrated in the Bay Area, what does the cavalcade of job cuts actually say about the regional economy?

Economists and experts said that while the layoffs are disruptive for the lives of the affected people, they don’t necessarily foreshadow an economic collapse like the dot-com bust of the late 1990s or the housing crisis of the late 2000s.

The classic indicators of a severe economic storm are job numbers turning negative while unemployment rates spike. But that isn’t happening, at least not yet, on the local, state or national level, said Stephen Levy, the director and senior economist at the Center for Continuing Study of the California Economy.

“So far, the job growth is positive and the unemployment rates are really very low, although that could change in the near term,” Levy said.

While the headlines are filled with reports of layoffs — including Salesforce, San Francisco’s largest private employer, cutting 10 percent of its workforce — Levy said the region is, for the time being, experiencing “a very mild downturn.”

Many companies that bulked up staffing levels during the pandemic are now cutting staff they no longer need. Levy pointed to Salesforce as an example. The company said it had 49,000 employees at the beginning of 2020 and 80,000 before the cuts, “so if they cut 10,000 they will still be 21,000 over pre-pandemic levels,” Levy said in an email.

Comparing previous economic busts and their impact on employment rates in San Francisco over time also sheds some light on the severity of the current downturn.

New data from the city’s chamber of commerce shows that almost three years from the start of the pandemic — about 34 months, based on the most recent data available — the unemployment rate is about 1 percent below where it stood pre-COVID.

After the same amount of time had elapsed from the beginning of the 2007-08 financial crisis, the city’s unemployment rate stood about 1.5 percent below where it had before the collapse. Both levels showed a more robust recovery than the 9 percent drop in the employment rate in the city almost three years after the dot-com bust.

Still, the larger economic horizon seems to darken by the day as companies cut employees and spending, and many tech startups find it harder to raise the money they need to launch, or give themselves a bit more runway.

While 2022 saw fewer IPOs and more down or canceled funding rounds, San Francisco still led the pack nationally with venture capital-backed company funding, San Francisco Chamber of Commerce data shows.

The city saw an infusion of more than $40 billion last year from venture-backed funding, followed by New York City with $38 billion. Silicon Valley came in fourth with $18 billion, while the East Bay came in ninth place with $730 million in funding.

Despite those eye-popping numbers from last year, “Venture investors are a lot more conservative” these days, said Sean Randolph, an economist and the senior director of the Bay Area Council Economic Institute. “As the large companies scale back their spending, that affects the market for the startups. It’s getting harder and harder.”

And while layoffs in the tech sector are not the only indicators of the region’s economic health, the Bay Area is so dependent on the industry as an economic engine that “if tech gets a cold at the end of the day, the entire economy is affected,” Randolph said.

(c)2023 The San Francisco Chronicle. Distributed by Tribune Content Agency, LLC.


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