Report suggests bad news for San Francisco’s economic recovery

San Francisco’s celebrated June 15 reopening date was supposed to mark the return of normal city life: cultural events, social...

San Francisco’s celebrated June 15 reopening date was supposed to mark the return of normal city life: cultural events, social gatherings and the revitalization of office buildings and tourist attractions.

That rosy forecast hasn’t yet come to bear. Instead, the emergence of the delta variant has slowed San Francisco’s economic recovery.

According to the Office of the Comptroller’s most recent report, released on Aug. 25, office attendance is down. People are also spending more time at home—16 percent less time away as compared to January 2020. That means they’re not out as much taking public transit, spending money at small businesses or investing in arts and cultural experiences.

That could spell trouble for the local economy.

Local merchants could face another tough year ahead, an uncertainty echoed in the report. It found that small business owners expected a longer recovery timeline than they did in July, and noted that new business registrations had dropped to roughly 500 in the month of July from nearly 800 in June. Both are lower than the nearly 1,200 pre-COVID average.

Staying close to home could also disrupt the economic recovery more broadly. Less spending means a decrease in San Francisco’s sales tax base, a primary funding source for city agency budgets, and threatens to disrupt its labor and housing markets even further.

“This report further shows the need to keep pushing hard to support our local businesess, which are the backbone of our economy,” said Daniel Herzstein, director of policy for the San Francisco Chamber of Commerce. “As the pandemic drags on, we need policies like vaccination requirements to help keep customers and employees safe and our businesses open.”

Ted Egan, The City’s chief economist, says these trends are likely mirrored across the country, but he remains hopeful that once the surge in delta cases subsides, the indicators should again improve.

The picture is a little less clear for tourism, a bedrock of San Francisco’s economy. Before the pandemic, the industry generated more than $10 billion in annual sales tax revenues and supported over 86,000 jobs.

While tourism took a hit everywhere when COVID-19 arrived, things have been especially slow to bounce back here in The City. According to the report, local hotel occupancy remains relatively steady at around 50 percent, a far cry from the 80 percent days before the pandemic.

Regional peer cities outpace San Francisco in hotel-generated revenue by a sizable margin. Phoenix is making more money on a nightly basis than it did during the same period in 2019, while San Diego and Los Angeles are bringing in over 80 percent. San Francisco has barely crested 40 percent of its nightly pre-pandemic earnings.

Egan attributes this sharp decline to a tourism industry especially reliant on international visitors, which have largely been barred from arriving, and convention business. More than one-third of hotel business and 20 percent of San Francisco’s travel and tourism center comes from conventions, according to a city report released in October 2020.

Moscone Center alone would host an average of 40 to 60 conventions annually before the pandemic, but there was already rising concern that companies were moving their events to other cities citing high costs, street conditions and safety concerns. Looking forward, the number of future bookings at Moscone Center remains uncertain, the report says.

One bright spot in the Controller’s Office findings is the continued creation of local jobs in the leisure and hospitality sector, which added 5,400 jobs in July and 39,800 since January.

Despite the growth, San Francisco employment is still down roughly 8 percent from pre-pandemic, ranking 35th out of the 40 largest U.S. metro areas, according to Egan. He noted this doesn’t include office workers whose jobs are technically still based in San Francisco, but are working remotely from elsewhere.

Egan cautions anyone from reading too much into the latest slowdown. “Growth should resume once we’re past the peak of delta infections,” he said. “I don’t think anything we’ve seen should derail the recovery.”

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