What the Changing Tech Market Means for California’s Economy
If you’ve been steeped in the start-up world, you’d be forgiven for thinking that the end of the world — or, at least, the tech bubble — was nigh.
After a two-year run of big funding rounds and even bigger valuations, venture capital funding is drying up. Start-ups are cutting costs and laying off employees. As my colleague Erin Griffith wrote recently, fear and loathing are returning to tech start-ups as geopolitical uncertainty increases, inflation soars and interest rates finally rise.
What does this mean for the rest of California? According to economists, it’s not yet time to worry. Even widespread start-up layoffs — nearly 17,000 in May alone, according to Layoffs.fyi, a crowdsourced online tracker — are still minimal in the context of California’s 17 million jobs, and the presence of big tech firms will stabilize the economy in a way that didn’t happen during the dot-com boom, economists said.
“The California economy is enormous,” Somjita Mitra, chief economist of the California Department of Finance, said. “If there are short-term slowdowns or declines in certain sectors, generally, as long as the health of the economy is still going, that gets absorbed into other industries relatively quickly.”
Besides that, big firms like Google, Apple and Microsoft are actually ramping up hiring and salaries despite plunging stock prices. For them, it’s business as usual.
Still, economists and watchdogs have been closely monitoring the potential impacts on California’s budget. In May, Gov. Gavin Newsom announced that the state expected a record $97 billion surplus, driven in part by an increase in income taxes paid by its biggest taxpayers.
The reliance on capital gains taxes that have driven the surplus also makes California’s budget volatile. Newsom has warned that budget planners have to be “deeply mindful” of the potential for economic downturn. State lawmakers on Monday passed a $300 billion budget framework for the upcoming fiscal year, but they still had to negotiate key pieces with the governor.
Declining tech revenues could eat into California’s budget surplus, economists said, but those impacts haven’t yet materialized.
“Silicon Beach, Silicon Valley — they’re extremely important in aggregate for us,” Mitra said. “But a lot of the slowdown tends to be in those young firms that generally have a hard time anyway because they’re not producing when they’re in the infant stage.”
Overall, economists said, national and global economic influences will be more important than the turbulence in the stock market.
“What happens more generally to inflation, what happens in Ukraine, are there further closures or are we really going to be back to opening up — those all matter more than what’s going to be happening with near-term market volatility in the stock markets,” Lenny Mendonca, Newsom’s former chief economic and business adviser, said.
Longtime Sacramento budget writers are quick to recall the fallout from the early 2000s dot-com bust, which turned surpluses into chasmic deficits. But the state has done a better job of building reserves this time around. And Newsom is proposing to spend most of the state’s discretionary surplus on one-time expenditures like additional debt payments and rebate checks.
On a local level in the Bay Area, the same factors that have hampered San Francisco’s economic recovery — namely, that tech companies have been slow to bring workers back to the office — could blunt the impacts of tech layoffs.
“We’re living in a world where there haven’t been a lot of tech workers walking around spending money for the past two years,” Ted Egan, San Francisco’s chief economist, said. “If we’re moving to a world where they aren’t walking around spending money because they’ve been laid off, it’s not going to feel that different.”
What we’re eating
A classic combination of cherries and almonds, in a tart.
Where we’re traveling
Today’s tip comes from Laurens Frisch, who recommends a trip to a national park off California’s southern coast:
“Way back in 1994 I had a great trip to the Channel Islands. It was my first visit to California and we went to Anacapa Island. The brown pelicans were flying around, which was a marvelous site. It’s a long trip from Los Angeles but worth it!”
Tell us about your favorite places to visit in California. Email your suggestions to CAtoday@nytimes.com. We’ll be sharing more in upcoming editions of the newsletter.
Summer is here. What’s your favorite part of the season in California?
Email us at CAtoday@nytimes.com with your stories, memories or recommendations.
And before you go, some good news
In the Bible, Methuselah was Noah’s grandfather and was said to have lived to be 969 years old.
Methuselah the fish isn’t quite as ancient, but she is believed to be the oldest living aquarium fish in the world. The Australian lungfish resides at the California Academy of Sciences in San Francisco and is somewhere around 90 years old, The Associated Press reports.
Methuselah’s keeper, Allan Jan, a senior biologist, said that the fish had developed a taste for fresh figs and that she liked getting rubbed on her back and belly.
“I tell my volunteers, pretend she’s an underwater puppy, very mellow, gentle, but of course if she gets spooked she will have sudden bouts of energy,” Jan said. “But for the most part she’s just calm.”
Thanks for reading. We’ll be back tomorrow.
P.S. Here’s today’s Mini Crossword, and a clue: Musical groups like Destiny’s Child and Haim (5 letters).
Soumya Karlamangla, Isabella Grullón Paz and Mariel Wamsley contributed to California Today. You can reach the team at CAtoday@nytimes.com.