The Bay Area is booming — and bracing for a slowdown

Bay Area companies are bracing for a rough time as ominous early warning signs of recession emerge amid trade wars, international tensions and stock market gyrations. Wall Street recorded a turbulent week, with a stunning 800-point plunge in the Dow Jones industrial average on Wednesday followed by gains that still left the major indexes down for the third week in a row.

“If we were driving down the freeway together, there would be a sign that says, ‘Caution, bumpy roads ahead,’” said Carl Guardino, CEO of Silicon Valley Leadership Group, a public policy trade association representing more than 350 major employers.

He emailed several CEOs of companies Thursday across a range of sectors — hardware, software, semiconductors, venture capital, financial services, renewable energy and a startup — seeking their perspective on the economy.

All said their companies are taking steps, such as curtailing spending, to weather a slowdown. “There was not a single ‘All is well,’” he said.

Some rank-and-file workers said they already see belt-tightening. Blind, an app for workers to discuss their companies anonymously, conducted a poll for The Chronicle this week asking workers at major tech companies whether their employers were cutting costs. It drew 2,601 responses.

An overwhelming number of workers at some companies reported a new frugality. More than four-fifths of respondents at Uber, Adobe, job site Indeed, Zillow Group, Symantec, Intel, Oracle and Cisco said they’re seeing cutbacks. Many cited hiring freezes and fewer perks. Some mentioned layoffs. San Jose’s Cisco, which makes networking hardware, cut almost 500 Bay Area jobs last week, its second round of layoffs in a year.

The numbers were smaller, but still significant, at other enterprises, with 75% at Google, 59% at Microsoft, 52% at Apple, 45% at Amazon, 40% at LinkedIn and 37% at Facebook reporting cutbacks.

At Uber, several employees mentioned hiring freezes and layoffs (it axed 400 marketing employees last month). Uber told workers last week it will no longer celebrate work anniversaries with helium balloons, saving $200,000 a year in San Francisco alone. Uber said that it “temporarily hit pause” on hiring for some engineering teams in the U.S. and Canada, but continues “to aggressively hire talent, including many engineers, all over the world.”

Of course, Uber, which went public in May and faces Wall Street scrutiny over its vast losses, has many reasons to practice thrift unrelated to the world economic situation.

While the widespread layoffs typical of a recession haven’t occurred, some recruiters said companies are adding employees in a more measured way.

“We’re so accustomed to tech companies saying, ‘We need 10 people yesterday,’” said Lauren Skuchas, managing director of the San Francisco office of Betts Recruiting, which finds employees for early stage venture-backed companies. “Over the past few months, we’ve seen a decrease in that crazy amount of exaggerated need.”

Likewise, Genine Wilson, vice president of Pacific markets for temporary-agent giant Kelly Services, said demand is starting to temper, but it’s not a steep decline. “A lot of people are being cautious,” she said. Hiring “is less than the prior year, but not yet alarming.”

For manufacturing and distribution temporary jobs, more requests are coming in at the last minute as companies wait to see the impact of tariffs and other trade challenges, Wilson said.

Other recruiters said hiring is continuing unabated.

“We have not seen any significant shifts in hiring that would point to a slowdown,” Mehul Patel, CEO of Hired, a marketplace for tech jobs, said in an email. “The reality is and continues to be that demand for tech workers outpaces supply, which contributes to hiring remaining very competitive. And where there’s an increase in demand, we’ve found there is also an increase in salaries.”

Will Hunsinger, CEO of Riviera Partners, which focuses on finding engineers and executives for venture-backed companies, said demand remains strong, but he hears many more people expressing concern about the future. “There’s a lot of discussion about whether we are at the top of the cycle,” he said.

A downturn is hardly imminent. This month’s emergence of an inverted yield curve, an indicator of expected slower growth, ignited the jitters. It happened Wednesday when interest rates on two-year Treasury bonds were higher than those on 10-year bonds, showing investors’ pessimism about the future. Normally, longer-term bonds pay higher yields to compensate for locking up money for longer.

But the inversion happened just briefly — and many experts say it matters only when it persists for several weeks or months. Although an extended inverted yield curve has occurred before every U.S. recession since 1955, the time lags were sometimes as high as two years.

Meanwhile, the nation and region enjoy historic low unemployment rates, while office rentals and residential sales and rentals continue to go through the roof. On Friday, the state said California’s unemployment rate was 4.4% in July (the seasonally adjusted rate was lower), while the San Francisco rate was 2.4%.

“The Bay Area still feels pretty boom-y,” said Ken Rosen, chairman of the Berkeley Haas Fisher Center for Real Estate and Urban Economics. “We haven’t seen any real signs of recession yet.”

But as the stock market falls, “companies will realize they have to be more cost-efficient,” he said, predicting a recession within two years.

“We’re more likely to see something mild this time (compared with the recession of 2007-09) but the Bay Area won’t be insulated or immune,” Rosen said. “Technology has huge excesses in valuations. When the capital markets say ‘no more,’ people will cut back hiring and use of space.”

Carolyn Said is a San Francisco Chronicle staff writer. Email: csaid@sfchronicle.com Twitter: @csaid

Article source: https://www.sfchronicle.com/business/article/The-Bay-Area-is-booming-and-bracing-for-a-14339525.php

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