Stimulus package will keep California limping along. But the economic chasm is deepening

Billions of dollars in fresh COVID-19 economic relief are on their way, but the just-enacted stimulus package won’t do any good for the Natomas Sports Club.

The Sacramento business shut down permanently in early November, a casualty of months of restrictions imposed by California Gov. Gavin Newsom to stem the spread of the coronavirus. The shutdown eliminated 89 jobs.

“It kind of speaks to how dramatic the financial impact has been on certain industries,” said Larry Gilzean, president of the club’s parent company Spare Time Inc., which operates seven other sites in the area. “We were one of the first industries shut down and we’ve had severe limitations on operations.”

The closure in Natomas illustrates the uphill climb facing the economy, even after President Donald Trump signed the $900 billion stimulus package — the third hefty relief package enacted by Congress since the pandemic began in March.

Experts say the stimulus package will help, but the economy won’t truly get back on track until the pandemic is largely tamed and normal business activities can resume.

“I don’t think this immediate infusion is going to lead to a jump in economic activity ... not as long as the pandemic is raging,” said economist Jeff Michael of the University of the Pacific.

Rather, the stimulus package “is about keeping households and businesses intact,” Michael said. “It will make sure the economy’s ready to go once we get the pandemic under control.”

Democrats in Congress, along with Trump, are pushing for another stimulus plan featuring $2,000 checks, but its prospects for passage are uncertain. In the meantime, the economy limps along.

Unemployment rates have fallen since late spring, when they soared into the double digits. But job growth has slowed, and most economists feel unemployment will worsen as California feels the effect of the latest shutdowns imposed in early December.

The latest economic statistics aren’t especially encouraging. On Thursday, the federal Labor Department reported that another 158,000 Californians filed initial claims for unemployment assistance in the week ending Dec. 19. Michael Bernick, a San Francisco labor lawyer and former director of the California Employment Development Department, said Californians accounted for nearly one-fifth of the nation’s jobless claims even though the state represents just 11% of the U.S. workforce.

The new relief package includes $600 payments per person, including children, although the amount decreases for individuals earning more than $75,000 and couples earning more than $150,000. Unemployment benefits of up to $300 a week have been extended and the package includes another $284 billion in loans under the Paycheck Protection Program earmarked for small businesses.

The paycheck loans, which are forgivable under certain circumstances, have been extremely popular so far, and there’s likely to be another mad rush for money. Some borrowers could qualify for a second loan.

The Professional Beauty Federation of California, which represents thousands of barbershops, hairstylists and nail salons, had already gotten 3,000 of its members to submit paperwork to a lending firm, Adesso, in preparation for the new paycheck loan program. Borrowers are required to go through a lender to apply for the paycheck loans at the Small Business Administration.

Fred Jones, the federation’s lobbyist, said a survey of membership showed that “a huge majority” of the hair and nail salon owners hadn’t applied for earlier rounds of PPP loans.

“One of the most consistent answers was, ‘I didn’t know I qualified,’ ” Jones said.

The program does have its limitations. Spare Time borrowed $460,000 in Paycheck Protection money earlier this year but it didn’t make the chain whole.

“Certainly it was tremendous help but it only covered a fraction of our losses,” Gilzean said.

The Natomas club was particularly hamstrung because it drew most of its membership from nearby office parks — buildings that have emptied out as employees work remotely. Even if Spare Time knew another stimulus package was coming from Washington, “it would not have affected the decision” to close Natomas in November, he said.

He isn’t optimistic about the economy snapping back to its prior form quickly. “It will be a prolonged recovery,” he said.

Sacramento event planner wonders about survival

Courtney Franklin worries the economy won’t rebound in time to help her.

Franklin is an event planner. Her four-year-old company, Courtney’s Creations & Events, staged 45 events in 2019 — weddings, baby showers and other events. The business was doing well.

This year, all she’s been able to stage is a handful of “driveway parties” for small gatherings. She spends a combined $2,400 a month in rent on warehouse space and a storefront on Florin Road.

Franklin did borrow $10,000 during the spring under another SBA program created for the coronavirus pandemic. But the “economic injury disaster loan” barely amounted to a single month’s revenue, she said.

“It wasn’t enough at all,” she said.

Now, with another stimulus package approved, Franklin is contemplating her business future with a fair amount of fear.

“It’s really been a struggle to decide if I’m going to continue on into 2021,” she said.

O.Z. Kamara, owner of Daddy O’s Smokehouse, is more upbeat — despite being a victim of terrible timing.

Until 2020, Daddy O’s was strictly a catering business, operating out of a commercial kitchen. A few weeks before the pandemic struck, Kamara signed a lease to build a restaurant on Mather Field Road in Rancho Cordova.

He’s been paying $3,100 a month rent on a space that’s remained empty as COVID-19 restrictions led to huge delays in getting the restaurant built and inspected.

“All this time, I’ve been paying rent on a building that we can’t even use,” he said.

He borrowed about $10,000 in PPP money when the funds became available in the spring. “For two months it was pretty good relief,” he said. “And then it was gone.” Three of the employees of his catering business have been furloughed.

For all that, however, Kamara believes business will improve once the restaurant finally opens in the next couple of months. He believes the customer base he’s built from catering will come through for him.

“Everyone has to eat,” he said. “There’s no way we’re going to fail; the fact that we made it through this, we can make it through anything.”

Stimulus plan ‘not a panacea’

Until intensive-care unit capacity improves, California’s economy will continue to suffer. Restaurants will try to survive on takeout and delivery; health clubs will have to operate strictly outdoors. Shopping malls will operate at reduced capacity.

And the billions pouring out of Washington won’t really change that.

Economist Sung Won Sohn, of Loyola Marymount University, said the legislation will certainly “help the people who are in desperate need, to buy food, pay rent.”

But the package won’t turn the economy around. Sohn said a crucial issue is the nation’s savings rate — simply put, the percentage of their incomes Americans are socking away instead of spending.

With restaurants closed for on-site dining in most of California, severe travel restrictions in effect and much of the economy locked down, people are hoarding more of their dollars — including the stimulus money they’ve been getting from Congress.

Normally the savings rate is in the single digits. In April, in the first wave of pandemic shutdowns, it soared to 33%, according to the U.S. Bureau of Economic Analysis. Although it’s subsided in recent months, it still stood at an unusually high 12.9% in November.

And that severely limits the effectiveness of the stimulus package.

“It prevents the economy from going into a deeper hole,” Sohn said. “It is not a panacea. It’s a stop-gap measure.”

This story was originally published December 31, 2020 at 5:00 AM.