Revised Data Reveal Explosive Growth of E-commerce in the Stockton Area: Transportation and Warehousing Jobs Now Exceed Retail Jobs

The annual benchmark revisions of local area employment data was released today (benchmarking is a once a year process to sync the monthly survey data with complete tax filings data).  As I expected, there was a large positive revision to Stockton area growth that now more accurately captures the full growth of the logistics industry.

Specifically, the Stockton area year over year job growth is now reported at a sizzling 4.8% annual rate, rather than the underestimated 1.6% in last month's release of preliminary data.  The number of payroll jobs in the Stockton area for December 2017 is 7,800 more than previously reported (an increase from 232,400 to 240,200).  Of those 7,800 newly reported jobs, a full 6,000 of them are in the transportation and warehousing sector.  Wow!

Perhaps the most amazing tidbit in this data is that we believe that the Stockton is the first metro area in California where the number of transportation and warehousing jobs exceeds the number of retail jobs.  Is this a harbinger of the future for other areas?  [We haven't checked everyplace, but there are 3 retail jobs for every trans/warehousing job statewide, and even 1.5 retail jobs for every trans/warehouse job in the Inland Empire which is the other area in California seeing explosive fulfillment center job growth.]

Obviously, this change doesn't mean that Stockton residents are the biggest e-commerce shoppers in the country - these jobs are primarily serving the Bay area.  It is a sign about how the Northern California Mega-region is increasingly interconnected. 

If this shift to the e-commerce economy makes you a bit uneasy, you might want to read the previous post about a study from the Progressive Policy Institute.  It is disruptive change for sure, but the economic effects may be different than you think.

Fulfillment Centers and Jobs: Is Amazon replacing paid retail hours or unpaid household shopping hours?

Over the past year, I would estimate the most common press/public question we have received in the Center for Business and Policy Research is about the impact of Amazon and other fulfillment centers on employment and income.  Is the growth of this industry just destroying and replacing traditional jobs in shopping center, or do they provide a net gain to employment?

I recently heard Michael Mandel of the Progressive Policy Institute speak on this topic at the National Association of Business Economists meeting in DC.  His presentation and the full report are accessible to non-economists, and provide an interesting, and often overlooked, perspective on the issue.  While much of the data analysis in the report is oversimplified, I still found it insightful and believe the general conclusions are likely accurate.  It is an effective push back against the doom narrative that surrounds much public discussion around robots and automation.

Mandel compares e-commerce to a previous retail revolution, the rise of the big box store.  He finds that the rise of lower cost big box stores was truly negative for retail workers, and that at least some of the efficiency gains of big box stores was to shift hours from paid retail workers to unpaid household work (think of people driving farther to shop at a store with lower service, but lower prices.)

In contrast, he notes that e-commerce is substituting for household hours spent shopping and running errands.  Thus, while fulfillment centers are having some negative effect on paid retail jobs, they are also creating new jobs by converting unpaid household shopping time to paid shopping time fulfilling and delivering orders directly to households.  He documents a significant decrease in household shopping hours that parallels the rise in e-commerce, and estimates that unpaid household hours of work still exceed paid hours in America's goods distribution system.  Thus, there is still a lot of potential for growth here.

He also notes fulfillment center jobs pay somewhat higher wages than big box retail, and that they only require a high-school education but utilize "a mix of cognitive and physical skills not dissimilar to industrial workers." 

In economic development conversations around the North San Joaquin Valley, I have often wondered whether these new distribution center jobs could be part of a skill building ladder for their employees - and whether experienced fulfillment center "graduates" could be an attractive workforce employers with even higher paying jobs.  There is also a lot of talk about a new wave of innovation, involving technology like 3-D printers, that could lead to some goods production or customization attached to these fulfillment centers.

I understand why there is anxiety about the robots in these automated distribution centers and what they mean for the future of work.  It is disruptive change, but I see the potential for more positives than negatives.  Indeed, Mandel said he thinks the biggest economic losers will be owners of shopping centers and big box stores.  Converting all that space and parking lots to other uses (like housing) could help alleviate some other problems we have, and create another batch of new jobs.

If you are looking for a readable and refreshing take on e-commerce, Mandel's report is well worth reviewing. 

The Wall and The Tunnels: Multibillion dollar boondoggles share bait and switch financial plans and more

Donald Trump’s biggest campaign promise was building a $20+ billion wall along the Mexican border.  The financial plan:  “Mexico will pay!”

For a decade, Metropolitan Water District has been campaigning for the $16+ billion Delta tunnels.  The financial plan:  “Farmers will pay!”   Well, that hasn’t exactly been their line.  Instead, the promise has been, “The cost is the same as a latte a month” along with promises of “no subsidies for farmers.” 

There have been many dubious assumptions behind Met’s calculation that it will “only” cost the average southern California household a few dollars per month, but the biggest whopper has always been that Met’s ratepayers would only covering 25% of the bill – which meant Central Valley farmers would shoulder the vast majority of the costs.

Despite the fact that most knowledgeable people knew both Trump and Met’s financial claims were a joke, they stood by these myths when they were in campaign mode trying to build political support and a sense of inevitability behind their mega-projects.  But in recent months, both of them have faced the reality of switching from a political campaign to actually getting the billions of dollars needed to fund construction of their pet projects.

Trump has spent the past several month’s trying to get Congress to appropriate over $20+ billion for the wall, even threatening government shutdowns and a DACA solution in his effort to get taxpayers to pay.  His new financial promise:  “Congress will pay, but Mexico will reimburse us.” 

As first reported by the Sacramento Bee's Ryan Sabalow, Metropolitan is now trying to rush its board into voting to pay for the farmers share of the tunnels.  Met's new financial scheme: “Our ratepayers will pay, but the farmers will reimburse them.”

Congress has not agreed to pay for Trump’s wall.  Likewise, Metropolitan’s board should not agree to finance the Governor’s tunnels.  The Met board has been misled about financing the tunnels for a decade, and I would advise board members not to believe this latest plan either:  The farmers aren’t going to pay you back, AND you aren’t going to get a share of their water supply if they don’t. 

All the way back in 2012, I predicted in an economic analysis of the tunnels that they were financially infeasible unless urban ratepayers and/or taxpayers covered 90% of the cost.  I think that prediction is looking pretty good today.  It is certainly more accurate than the consultant and staff presentations the MWD board has been listening to for 10 years.

The parallels between the Tunnels and the Wall go beyond this synchronized pivot from “other people will pay” to “you will pay, but the other people will reimburse you.”  Both of these multi-billion dollar concrete mega-projects are not very effective at addressing the issue they are trying to solve. Furthermore, both of these projects are incredibly divisive concrete symbols of power that are truly offensive to large segments of the population.

For example, Congressman LuisGuiterrez famously tweeted this about the Wall, “It would be far cheaper to erect a 50-foot concrete statue of a middle finger and point it towards Latin America. Both a wall and the statue would be equally offensive and equally ineffective…”

Many Delta region residents and environmentalists feel similarly about the Delta tunnels.  

And Metropolitan’s new go it alone financing plan makes the tunnels even more divisive than ever, because it will open up a new hostile front in California’s water wars between the urban serving State Water Project and the agricultural serving Central Valley Project.  MWD’s Jeff Kightlinger acknowledged this when answering concerned questions from his board members:

"it puts the two projects in competition instead of in partnership and how to sync their operations. Now you would have CVP people saying we need to maximize south Delta, we need to politicize that issue as much as we can, and that’s not appropriate because we’re the one who made the investment to do the more environmentally friendly investment. How we would work that with the state and federal project at odds with each other, trying to work these out in the state and federal legislatures is challenging..."

This is an accurate assessment of the additional conflict, except that many disagree with him that the tunnels are an environmentally friendly investment.   

Metropolitan’s new financial plan would make a bad project even worse.  Will Met’s board be able to resist the political pressure to take a rushed vote on this ill-advised strategy?  Sounds like we will find out next month.