On the surface, Sacramento’s jobs numbers so far this year bear good news. In February, the region fully recovered the jobs lost during the pandemic.
However, Sanjay Varshney, chief economist of the Sacramento Business Review, says there are troubling trends in the job market below the surface.
“While we rejoice in population growth and migration from the Bay Area that has sent the housing market to the moon, job creation has not kept pace,” Varshney wrote, in the Sacramento Business Review’s midyear economic forecast, released this week. “Homelessness and crime are on the rise, and we have no new large private sector companies to hang our hats on. While the government jobs appear stable, how long before we go from surplus to deficit mode like in the past?”
Varshney, who is also a finance professor at California State University Sacramento and founder and principal of Goldenstone Wealth Management in El Dorado Hills, said several economic indicators point to a looming recession. Those include an inverted yield curve in the bond market, the Federal Reserve raising interest rates, and the occurrence of an actual recession based on the technical definition — in the first half of the year, the U.S. saw two consecutive quarters of negative growth.
Consumer sentiment has also dropped since January — when the survey the Business Review conducts with SAFE Credit Union found consumer sentiment was at its lowest point in the five years they’ve been conducting the survey.
“The data from this survey indicates Sacramento consumer’s deep concerns with our regional economy,” SAFE Credit Union CEO Dave Roughton said, in a statement. “While we know the negative impacts of the pandemic and global geo-political events on current economic conditions, there are actions we can take locally to restore our communities and provide optimism for the future.”
Specifically, Roughton called on political, business and nonprofit leaders to come together to develop a unified strategy to tackle homelessness.
“Addressing homelessness will encourage businesses wanting to relocate to choose Sacramento because, as the Capitol city of the fifth-largest economy in the world, Sacramento has much to offer those businesses in terms of workforce talent, affordability and quality of life,” Roughton’s statement said. “Addressing homelessness will ultimately lead to more, great paying jobs for all Sacramentans.”
Varshney said he’s concerned that the job market is not much more robust now than it was in the lead-up to the Great Recession.
“I don’t think the housing market is anywhere near where it was in 2008, 2009, but I don’t think the job market has changed much,” he said.
During the pandemic, the Sacramento region saw an explosion in population growth — largely from people in the Bay Area who sought more affordable housing as their employers transitioned to remote work.
“Sacramento’s housing market was a huge beneficiary of the work-from-home movement,” Varshney said.
However, that population growth didn’t come with corresponding growth in local jobs. That could prove to be a negative to the region if employees are called back to the office.
“Tech companies in the Bay Area are going to reverse course,” Varshney said.
As of this week, Cupertino-based Apple Inc. (Nasdaq: AAPL) is requiring employees to work from the office three days per week, and Goldman Sachs Group Inc. (NYSE: GS) is now pushing all employees back into the office full-time, in what Varshney thinks signals the beginning of a trend.
“I don’t think people are going to keep rushing to Sacramento anymore,” Varshney said. “The gold rush is over.”
Varshney said the people who moved here during the pandemic are either going to have to move back, or quit their jobs there.
“If some people choose to give up those jobs, then they’re basically going to add to the pressure on the mid-tier and high-tier jobs here,” he said.
Varshney said there was an assumption that high-tech workers from the Bay Area would be a benefit to the Sacramento economy because they would start tech companies here. But that hasn’t borne out so far, he said, because the skilled tech workers who are happy to bring home a steady paycheck aren’t necessarily all going to want to take the risk of starting up a new company.
“My take is that these are middle-class families that got priced out” of the Bay Area, Varshney said.
That also means these workers are vulnerable to layoffs if there is another recession, which means they would be competing with local workers for the limited number of high-paying jobs in Sacramento.
While the economy has expanded since the last recession, Varshney said Sacramento mostly added restaurant and other low-wage jobs.
“You might think you’re OK, because the economy seems to be growing with the population growth, but it’s not meaningful growth,” he said.
The situation is especially precarious as inflation has outstripped the rate of wage growth.
Over the past year, average hourly earnings in the Sacramento region have increased by 7.04%, according to the Sacramento Business Review, but that was offset by a 3.22% decrease in the average weekly hours worked, and has not kept pace with inflation. In July, the Consumer Price Index was up 8.5% from a year earlier, according to the U.S. Bureau of Labor Statistics.
“There’s a lot of concern right now that all of these people who are bringing home a paycheck can’t make ends meet,” Varshney said.
What Sacramento lacks, he said, is a robust driver of high-paying jobs.
“We do have success stories,” Varshney said. He said that there is an ecosystem of startups that are thriving in Sacramento.
“They’re mostly small though,” he said. “They’re not large-scale, critical-mass stories, where you see a huge impact on jobs.”
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