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How businesses are impacted by recessions

On Behalf of | Oct 14, 2022 | Business Transactions And Litigation |

California State Controller Betty Yee, along with other economists, believes the country is either already in the midst, or headed for a complete recession within two years. During a Solvang Chamber of Commerce conference on Aug 24, Yee noted that some of the largest employers in the state have already started delaying hiring and business growth initiatives. She described these actions as the first type of potential recessionary impacts. The 2022 Solvang State of the City address hosted Yee as the keynote speaker.

Recession felt in California

Serving as state controller since 2014, Yee is the chief financial officer of the world’s fifth-largest economy. She isn’t projecting a prolonged recession, but does expect the gradual increase in unemployment claims received recently to continue to increase. Historically, fewer goods and services are produced during a recession. According to Yee, the state is already experiencing labor shortages in multiple sectors, while households are experiencing inflationary pressures and the housing market is impacted severely by rising interest rates.

More on California and recessions

Yee believes downturns in consumer spending and residential and commercial construction may no longer be reliable as key indicators of a recession. According to Equifax, the bankruptcy rate for businesses in California reached 81% in 2021, nearly doubling the national average. Under business law, companies unable to pay their debtors are required to file bankruptcy, dissolve the operation to recover capital and establish repayment plans for outstanding debts. Over 19,000 businesses filed for bankruptcy in 2021, doubling the total from 2008.

The economically disadvantaged areas are expected to be hit the hardest, as job losses among unskilled workers like laborers are typically higher than for skilled workers. Layoffs and hiring freezes could exacerbate the situation, adding to the feedback loop driven by social apprehension over a potential recession. Consumer spending is likely to tighten as well.

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