From her vantage point at the cashier’s stand in a grocery store in Mountain View, Maria Soria sees firsthand the damage wrought by a rare vortex of economic troubles descending on Bay Area residents and businesses, from skyrocketing inflation to rising rents. As a retail worker living in one of the costliest regions of the world, she faces problems herself.
Since the start of the year, Soria’s rent for a room in a shared apartment in Mountain View has jumped nearly 50%. “My neighbors are worried about that, too,” said Soria, 22. “Some of them had to move out.” She used to spend about $100 on groceries every two weeks. “Now I’m spending like $150 or $200,” Soria said.
In Ava’s Downtown Market where she works, prices are rising for almost every foodstuff. The store on Castro Street specializes in organics, but she sees customers around town who can no longer afford to shop there. “They want to support the local business but if they can’t afford it, they’re not able to do it,” she said.
Welcome to the Bay Area’s summer of 2022, where a lot of places are struggling like Ava’s Market, and a lot of people are aching like Soria. What may be most surprising, though, is the wide variety of economic afflictions that are causing the pain – you might escape one problem, but there’s another one around the corner waiting for you.
For businesses, there are pandemic-related supply chain issues that still linger many months after the lockdowns that helped cause them. For middle-class workers, there are soaring gas prices driven in part by the war in Ukraine. And for the tech companies and workers that power our economy, there’s the breathtaking stock market plunge battering 401Ks and pinching startups. It’s not a recession yet, economists tell us, but it sure feels like one.
“It’s very unusual,” said Steve Levy, director of the Center for Continuing Study of the California Economy in Palo Alto. “That’s a huge amount of stress on the economy. I suspect that we’re going to enter a period of slower growth if not some recessionary impact.”
Jerry Brown, 78, a retired technology trainer from Los Altos, said inflation – the highest in four decades and pushing 10% – has him waiting for some foods to go on sale. “Like bacon,” he said. “It’s $12 right now. Every now and then, they’ll have a sale and it’ll be $5.”
Andrea Davis, a preschool teaching assistant who used to love the occasional splurge on clothes and tasty treats, today sticks solely to necessities. “Now I’m like, ‘Nope, I can’t do this, I can’t do that,’” said Davis, 39. But even prudent spending can’t make up for increasing costs, so she’s looking to change schools to work closer to her low-income Mountain View apartment and cut her daily Caltrain commute cost from the current $12, she said.
San Jose master’s student Johanna Menendez and her boyfriend used to eat fancy restaurant meals, spending up to $150. Now they’ll eat out only if they can keep the bill to $20, and “it needs to be close by so we don’t need too much gas,” said Menendez, 28, studying engineering science at the University of the Pacific. The couple spent a month talking to banks before finding a loan rate low enough to make a home renovation affordable, she said.
Although mortgage interest rates that have doubled in the past year may be slowing growth in Bay Area home prices, that doesn’t mean houses have become affordable, and inflation, faltering stocks and financial uncertainties conspire against would-be buyers, said Nicole Bachaud, an analyst for real estate company Zillow. “For new homeowners or people trying to get into the market it’s quite a bit more challenging now than it’s been in the past,” she said.
Living and doing business was already expensive in the Bay Area, and the swirling woes are aggravating problems that have cascaded out of the COVID pandemic, said Jim Wunderman, CEO of the Bay Area Council, a group representing hundreds of employers. “It’s causing dislocation and frustration,” Wunderman said. “We’re losing population. We’re losing jobs.”
In Sunnyvale, Ace Hardware store manager Drew Brent spent three months ramping up for last weekend’s grand opening. Manufacturers struggling with higher raw material prices and stuttering supply chains have upped prices. “We have to follow suit,” Brent said. “That makes it tough, particularly for a business that’s just starting.” Customers worried about their finances are bypassing less-necessary items such as plants and delaying fixer-upper projects, he said. “The total of their basket is reduced,” Brent said.
A hot job market, rising rents and escalating commuting costs also make workers hard to find, Brent noted. With only half the staffing he needs, he has to operate the store from 9:30 a.m. to 6 p.m. instead of 8 a.m. to 7 p.m. “The number of applicants we’re getting is very low,” he said.
San Jose comedian and engineer Cynthia Ouandji said that with pandemic restrictions easing, revival of the arts had seemed imminent. Event attendance started to climb. But the recovery has been stunted by consumer belt-tightening. Gas prices are topping $6 per gallon in the Bay Area, so fewer people are willing to drive across town to attend shows, and seats in the audience have started to empty again, Ouandji said.
Bay Area startups are getting squeezed, too, with higher interest rates cutting access to capital and investors hit by stock losses wary of risks they used to take, said Masha Bucher, founder of San Francisco venture capital firm Day One Ventures. “Lots of startups are going to go out of business,” Bucher said. Many are laying off workers for lack of funding, she said. In the first quarter of this year, nearly 70% of reporting VC funds saw their valuations drop from 2021 peaks, according to data firm PitchBook.
Established companies are also laying off workers, sometimes over recession fears, Wunderman said. Electric car maker Tesla, reeling from supply chain ills and COVID shutdowns in China, just let go almost 200 workers in San Mateo amid a company-wide 10% workforce cut, Bloomberg reported, and regulatory filings this week showed another 69 layoffs at Fremont facilities, including 41 in its factory.
Many of the region’s software companies are watching inflation hit consumer goods and waiting for it to spread into software license fees and server storage costs, especially with the computer chip shortage now affecting electronics and cars, said Anand Kulkarni, CEO of Crowdbotics, a Berkeley app-building company. “The thing with inflation is that some of these changes take a while to manifest,” Kulkarni said.
Though rising consumer prices are often accompanied by increases in wages, such raises are rarely distributed equally across income levels, said Russell Hancock, CEO of think tank Joint Venture Silicon Valley. “Inflation is the most punishing for those in lower-income tiers,” Hancock said. “Nobody wins with inflation, but companies can sometimes cope with the pressures by making products more expensive. Meanwhile, any salary growth that those in the lower tiers may be seeing is not enough to keep pace.”
Some people and businesses are insulated from the economic turmoil to varying degrees, Levy noted. One clear winner is Chevron of San Ramon, which saw its first-quarter profits nearly quadruple to $6.3 billion over the same period last year as gas prices soared. Many tech and white-collar workers working remotely get relief from record gas prices by not commuting. Homeowners who locked in low interest rates, and landlords charging higher rents, are also benefiting. Many finance-sector and bio-tech companies and their workers are doing well, Wunderman said. Job seekers often have plentiful choices.
For this region, Levy predicts relatively short-term economic grief. Technology giants like Google and Facebook, along with smaller tech firms, are investing heavily in the Bay Area, he noted. “Companies are planning for an expanded future here, but that doesn’t mean we can’t have a rough year.”
The coming months will likely prove exceptionally tough for many in the region. Richmond truck driver Eric Jordan watches the stack of bills on his desk get higher as he tries to cope with inflation on $800 per week in wages. He spends $25 a day on gas. The juice he and his 16-year-old daughter like costs $5 now, up from $3. It’s a newfound struggle to cover grocery costs with food stamps, which he said have not risen to adjust for inflation. He and his wife often buy week-old produce.
“It’s rough out here, so you have to do what you have to do,” Jordan, 57, said. “We ain’t got no silver spoons, so we’re struggling like everybody else.”