How fast will Sacramento bounce back from mass layoffs? There’s pessimism, and a glimmer of hope
For a while, anyway, an Irish company called Voxpro was the toast of Folsom.
Voxpro, which operates call centers, brought a burst of pizzaz and hundreds of jobs when it opened its Folsom facility four years ago. Work spaces were decorated in splash colors. When they weren’t handling calls for big-time clients like Google, employees were shooting pool on a table tricked out to look like a Ford Mustang.
But now, like practically everyone else, Voxpro is getting pounded by the coronavirus pandemic. In early May it began laying off 200 workers in Folsom, the result of “unforeseeable dramatic changes caused by COVID-19,” the company said in a letter to state officials. “This mass layoffs is expected to be permanent.”
There’s plenty of that going around. COVID-19 has erased millions of California jobs — many of them in large, demoralizing chunks like Voxpro as companies have scrambled to downsize in response to the shockingly swift shutdown of much of the state’s economy.
California’s dizzying descent into recession has been accompanied by a nagging fear: This downturn might not end soon. Even as the economy starts to reopen, jobs are continuing to disappear. The prospect of a quick turnaround is uncertain.
On Friday, the state Employment Development Department announced that greater Sacramento’s unemployment rate soared to 14.2 percent, eclipsing the numbers seen during the Great Recession. California’s unemployment rate clocked in at 15.5 percent.
Even those dismal numbers don’t capture the full extent of the economy’s decline. The statistics reflect data gathered in mid-April. Hordes of jobs have vanished since. Just in the week ending May 16, about 358,000 Californians, including payroll employees and gig workers, filed initial claims for unemployment benefits, according to the U.S. Labor Department.
“You can see the unemployment claims still piling up,” said Sanjay Varshney, an economist and finance professor at Sacramento State.
Jeff Michael, an economist at the University of the Pacific, said California’s unemployment rate will likely reach 18.8 percent soon but probably not go any higher. That’s well below the Great Depression-like 25 percent figure predicted by Gov. Gavin Newsom, but still considerably worse than the peak unemployment rate of 12.3 percent recorded in 2010 in the last recession.
The devastating flurry of major layoffs and furloughs cuts across a wide range of industries.
According to notices filed under the WARN Act, required when a company with more than 75 workers trims its payroll, the last few weeks alone have seen cutbacks at such diverse workplaces as Spectra Food Services, a Sacramento food concessionaire (135 jobs) and TriWest Healthcare Alliance, a Rancho Cordova company that runs health programs for the Department of Veterans Affairs (202 jobs). TriWest’s furloughs were caused by the massive downturn in non-emergency caseloads as the industry geared up for a surge in COVID-19 patients.
Meanwhile, Greenheck Fan Corp., a Rocklin manufacturer of industrial fire and smoke control systems, furloughed 114 workers, and Alsco, a linen rental company, furloughed 47 workers in Sacramento and another 158 from the Bay Area to San Diego. SkySlope Inc., a Sacramento software company, furloughed 44 workers.
How quickly will jobs come back? Michael doesn’t expect an immediate turnaround. Aside from the initial rush of enthusiasm for shopping and dining out, Michael believes the economy will undergo “a flat period” before meaningful economic recovery begins.
Restaurants will be handicapped for awhile by reduced seating mandates. Gov. Gavin Newsom is keeping a lid on large gatherings like movies and ballgames, keeping a major part of the economy on ice. (The Oakland A’s and San Francisco Giants have furloughed 2,000 workers combined; the Kings just furloughed 100 full-time workers).
Sacramento is laboring under an additional burden: Facing a projected $54 billion deficit, Newsom is vowing to impose a 10 percent pay cut on state workers. If that holds true, “that would probably make our situation a little bit worse than everybody else,” Varshney said.
There will also be bumps on the road. Last week Sacramento County was ready to allow fitness centers to reopen, and let residents gather in groups of up to 10 people. Then it reversed itself.
“We’ll probably see some hiccups; we’ll probably see some challenges,” Varshney said.
For the most part, he said the speed and strength of the recovery will depend on California’s ability to avoid a fresh spike in COVID-19 cases.
In other words, if Californians can stay relatively healthy, “we might see a very sharp recovery,” the Sacramento State professor said. “If that doesn’t happen, this could be a grind.”
Pessimism about California’s economy
When they first started getting pink slips, Californians kept their sunny outlook. Some of that is fading.
In the early days of the pandemic, 91 percent of Californians filing unemployment claims expected to be recalled by their employers, according to a study by the California Policy Lab at UCLA and UC Berkeley.
Lately, though, that percentage has fallen to 69 percent as the pandemic has worn on and businesses have been slow to reopen. It hasn’t helped that some high-profile businesses have closed altogether. Sacramento has lost one of its premier retailers, the Nordstrom store at Arden Fair mall; and one of the city’s signature restaurants, Biba.
“Some damage will be irreversible,” Varshney said. “Some businesses will go out of business.”
Lesser-known companies are making permanent cutbacks, too.
The pandemic forced sheet-metal contractor Iron Mechanical to reduce headcount by 88 workers at its Sacramento headquarters and at job sites around Northern California. “We anticipate these layoffs to be permanent,” the company’s chief executive Jed Risse wrote in a WARN Act notice to the state.
Learning Solutions, a Sacramento company that provides support services in classrooms, got clobbered when school districts closed down. It laid off 81 employees, some temporarily and some permanently. “This mass layoff is caused by physical calamity and business circumstances that were not reasonably foreseeable,” president Erin Chargin said in her WARN Act notice.
Penny Pellum, running on financial fumes for the past two months, is doing her best to hang in there. It isn’t easy.
Pellum owns All Seasons Day Spa in midtown Sacramento. It offers massages, waxings, facials — the kind of up-close services that are being relegated to future phases of Newsom’s reopening of the economy.
Pellum has applied for all manner of government assistance — unemployment, the business loans offered by the city — and had come up empty until just last week, when she received approval for a U.S. Small Business Administration loan.
Pellum has been able to bring in some dollars by selling skin products to her clients. Sometimes they come by to pick up their purchases at the door; sometimes Pellum delivers the goods herself. But it’s not enough money to be sustainable.
She alternates between hope and despair. In an interview last week, she was at first adamant that the business would survive: “We will make it, because of the support of my clients, my friends, family.”
A minute later, she suggested she’s made peace with the possibility of the business going under. “If I don’t make it, I’ve been here 25 years, working with my clients,” she said.
An argument for strong recovery
Chris Thornberg is a prominent Southern California economic consultant and hardly a Pollyanna — he was among the first to predict that the housing bubble of 15 years ago would lead to major problems.
Now he says the current recession should end relatively quickly.
The founder of Beacon Economics in Los Angeles, Thornberg said the economy was fundamentally sound before COVID-19 struck. There’s little reason why it shouldn’t return to that state once the health crisis passes.
“This is not the same kind of unemployment you saw during the Great Recession,” he said last week. “This is not a financial bubble.”
What about the restaurants and retailers that have gone under? For the most part, these were businesses that had significant problems to begin with, including ferocious competition from internet commerce. “The only companies that are truly at risk are the ones that were truly at risk anyway,” he said.
Dan Elliott, owner of The Strum Shop music store in old downtown Roseville, has become one of the optimists.
A $34,000 Paycheck Protection Program forgivable loan helped Elliott keep his workforce intact, a group of 17 that includes store clerks and music instructors.
“That took a lot of the pressure off,” he said. “I would not have survived without that.”
Now that Placer County has allowed retailers to reopen, he’s seeing the traffic return to his store.
“It’s picking up,” he said. “We seem to be doing OK. ... I’m feeling pretty confident about our future and about our progress so far.”
Some employees resist coming back
Ryan Hammonds’ company has been able to ride it out — most of it, anyway.
The owner of R Douglas Custom Clothiers, he spent two months making garments for customers who had placed orders before the shutdowns. He’s even produced masks out of material that was intended for shirts.
Now he’s able to reopen his shops in downtown Sacramento and Fresno, and he’s feeling good about things: “I think we’ll recover.”
But the comeback is far from complete. He’s closed his Los Angeles shop altogether. So far he has only two employees working, besides himself, out of what had been a nine-person staff.
One impediment, he said, is Congress’ decision to add an extra $600 a week to state unemployment benefits as part of the stimulus package, through the end of July. For some employees, he said, it makes more financial sense to stay home than rush back to work.
“This will make things challenging for employers to bring staff back,” Hammonds said. “That’s going to hurt the economy.”
Roy Kim, deputy director of workforce development at the Sacramento Employment and Training Agency, said the extra $600 is proving to be a powerful incentive to furloughed employees to stay home.
“Once those special funds run out you’ll see more people interested in going back to work,” he said. “The closer they get to that end date the more likely they’ll be knocking on our doors.”
Sara Nelson, who runs Elk Grove Montessori School, said she’s come up with a more immediate solution.
When the state said daycare centers could reopen, Nelson figured she might only bring back three or four of her 14 employees. There’s no need to rehire everyone. She’s going to be able to reduce class sizes by more than half — 10 kids instead of the usual 24 — to comply with social distancing guidelines.
Her teachers suggested an alternative: Bring everyone back, but with reduced hours. That would allow them to remain eligible for unemployment benefits, including the $600 weekly extra. Part-time employees are eligible for unemployment in California under certain circumstances.
“I was so flabbergasted by the conversation,” Nelson said. “And then I thought, ‘Let me put myself in their place. Are they sacrificing to come back to me?’ I put it in perspective, and it’s tons of money as far as they’re concerned.”
She plans to reopen June 1.
This story was originally published May 24, 2020 at 5:00 AM.