The recession is coming. Not overnight, but in small pieces and with evidence, if you want to look.
California is under attack by the Governor and the legislature. They just passed a bill to raise the cost of gas. Plus, automatically on July 1, 2023—less than 60 days from now the gas tax goes up by four cents a gallon. They turned a $100 billion surplus into a $31 billion deficit—in just one year. And the deficit is growing since productive people and firms are leaving the State taking tax revenues and investments with them.
“It’s an ominous sign for California, already reeling from the tech collapse and a banking crisis, and a glimpse into what may lie ahead for the rest of the US as it stares down a potential recession.
California, the world’s fifth-biggest economy, projects that a mild recession is possible, giving way to concerns that the pain would hit the Inland Empire’s blue-collar workforce especially hard.
“When the party ends, then you know the drop will be even faster,” said Johannes Moenius, an economist at the local University of Redlands. “The more warehouses we have today or tomorrow, the steeper the fall.”
Data out Tuesday showed US supply-chain activity fell to the lowest in at least 6 ½ years in March, with low transport prices for goods driving the decline in the Logistics Managers’ Index. Also, Walmart is planning job cuts at five e-commerce fulfillment centers that will affect more than 2,000 positions across the country, according to regulatory filings, though impacted employees may find other roles at the company.
You have Amazon cutting close to 30,000 jobs and you get the point. The recession is here—in most part due to government policy in Washington and Sacramento. Hurt the worst? The middle class.
The US Warehouse Capital Boomed During the Pandemic. Now It’s Facing a Slowdown
Southern California’s Inland Empire, a notorious boom-and-bust economy, is showing warning signs for the rest of the US.
Augusta Saraiva and Amanda Albright, Bloomberg, 4/4/23
Southern California’s Inland Empire, the warehousing mecca that’s home to Amazon.com Inc. and Walmart Inc. facilities, is showing signs of trouble.
Just last year, the region was hiring workers faster than California and the rest of the US — emerging as a top beneficiary from the supply-chain turmoil that clogged warehouses and led to record imports through North America’s largest port complex near Los Angeles.
Now, the gush of cargo that once flowed through the 27,000-square-mile area, stretching from east Los Angeles to the Nevada and Arizona borders, has dwindled to almost three-year lows and jobs are harder to come by.
US Warehousing Mecca Spans Across Southern California
Source: Riverside County Mapping Portal
It’s an ominous sign for California, already reeling from the tech collapse and a banking crisis, and a glimpse into what may lie ahead for the rest of the US as it stares down a potential recession.
California, the world’s fifth-biggest economy, projects that a mild recession is possible, giving way to concerns that the pain would hit the Inland Empire’s blue-collar workforce especially hard.
“When the party ends, then you know the drop will be even faster,” said Johannes Moenius, an economist at the local University of Redlands. “The more warehouses we have today or tomorrow, the steeper the fall.”
Data out Tuesday showed US supply-chain activity fell to the lowest in at least 6 ½ years in March, with low transport prices for goods driving the decline in the Logistics Managers’ Index. Also, Walmart is planning job cuts at five e-commerce fulfillment centers that will affect more than 2,000 positions across the country, according to regulatory filings, though impacted employees may find other roles at the company.
The Inland Empire, an epicenter of California’s 2008 housing crisis, occupies a strategic location just east of the twin hubs of Los Angeles and Long Beach, which collectively handle about $500 billion in goods annually.
With a population of almost 5 million, it delivered a remarkable increase in transportation and warehousing jobs during the pandemic, peaking at 215,000 last year and marking a 40% surge from February 2020.
Inland Empire Transport, Warehousing Jobs Drop From Record
People working Inland Empire logistics peaked in early 2022
Source: Bureau of Labor Statistics, St. Louis Fed
But recent data suggest a changing economic landscape, with the region’s San Bernardino and Riverside counties registering an unemployment rate of 4.4% in January — the highest in almost a year — as the trade, transport, and utilities sector hit the brakes on hiring. Meanwhile, the industry’s average hourly pay of about $20 falls about $8 short of the nationwide rate for all occupations.
“The Inland Empire has accumulated jobs that pay little, and do not produce much value added. These are at high risk of automation, contribute substantially to environmental pollution and consume vast amounts of space,” local economists led by Manfred Keil, chief economist of the Inland Empire Economic Partnership, wrote on March 30.
Melissa Ojeda, a 28-year-old trained pastry chef, knows all too well the struggle of finding a stable career in the Inland Empire. After losing her job at the start of the Covid-19 pandemic, she landed a position at an Amazon facility in San Bernardino. The sector “is the one that gets you in the door,” said Ojeda. “I don’t know if I’d consider that a career.”
She earned about $500 a week after taxes arranging packages on planes, and said the rising cost of living, including food and gas prices, made it difficult to save money. She lives with her parents to cut down on expenses.
Ojeda quit her position in late March, and has since then taken a job at a non-profit that advocates for better pay and work conditions for warehouse workers. “My body couldn’t handle it anymore,” she said.
In an emailed response to questions, an Amazon spokesperson said wages at the San Bernardino hub start at $18 an hour, and noted the company has recently announced a $1 billion investment in pay for hourly employees.
The Inland Empire, which has a history of booms and busts, was hit particularly hard during the Great Recession, with unemployment exceeding 14% and rampant foreclosures. However, many government officials and business leaders believe that the region is now in a much better economic position, arguing that gains in the warehousing industry will serve as a cushion during any future economic downturns.
“We’re going to have a slowdown over the next year, we can expect that,” said Crystal Ruiz, mayor pro tempore of San Jacinto, home to enough warehouse space to occupy about 43 football fields, according to Pitzer College.
That said, warehousing isn’t “this big, bad, ugly thing in the room,” she said. “It’s providing a lot of jobs, and it’s providing higher wages and minimum wage, which in our country we desperately need.”
Over the longer term, the Inland Empire is poised for significant growth — and potential new strains on its infrastructure — with its population projected to increase at double the rate of the rest of California over the next 25 years. The region’s warehouse-vacancy rates are nearing all-time lows at 1%, and major development projects, such as Amazon’s largest fulfillment center in the world, are underway.
To help sustain that expansion, the Southern California Association of Governments, which encompasses six counties including Los Angeles, Riverside and San Bernardino, is pushing for significant investment in the region’s logistics industry. Local authorities have requested $100 billion for transport improvements to expand infrastructure and address environmental concerns.
Read More: LA Warehouse Mecca Halts Expansion Just as Needs Soar
But some communities in the region are pushing back against warehousing construction due to the region’s already high rates of asthma, heart disease and low birth rates, throwing into question the future of ambitious growth plans. Over the past year, a handful of local city councils, including Pomona and Norco, have put in place moratoriums to study the environmental impacts of industrial development.
Solutions proposed by policymakers such as more investment in the industry are “pretty thin and reflective of a lack of imagination,” said Sheheryar Kaoosji, executive director of the Warehouse Worker Resource Center. “They’re basically in a race to the bottom.”
Experts say the diversification of the economy is needed to reduce the risk of future economic ups-and-downs. Other industries, including scientific services and health care, could provide more sustainable jobs, according to Gigi Moreno, senior economist at the Southern California Association of Governments.
“Policymakers need to start looking at increasing skills and educational attainment that will support long-term growth and long-term growth of high-quality jobs in the Inland Empire,” said Moreno.
