Warehouse Boom Fades, and the Hopes of a California Region Fade With It

STOCKTON, Calif.—The e-commerce boom didn’t just change consumers’ lives, it transformed entire regions, turning backwaters into logistics-driven boomtowns. Now, some of those regions confront an uncomfortable question: What do you do when the boom ends?

Nowhere is that question more pressing than in San Joaquin County in California’s Central Valley. A decade ago it had one of the highest unemployment rates in the U.S. Many of its workers relied on seasonal agricultural jobs. Relatively few had college degrees.

Everything changed when Amazon.com opened its first warehouse in 2013. It touched off a land rush, with major retailers vying for space to fill online orders from the San Francisco Bay Area.

Transportation and warehousing employment in the region more than tripled in the decade to December 2022, accounting for 44% of total job growth in the metropolitan area around Stockton, San Joaquin County’s largest city.

Today, the industry employs roughly 17% of the area’s workforce, one of the highest concentrations in the country. Amazon is San Joaquin County’s largest private employer, with more than 13,000 workers in 11 facilities, said Bob Gutierrez, interim president and chief executive of the San Joaquin Partnership, an economic-development group. Amazon flights land every day at the Stockton airport. The company says it has invested $9 billion in San Joaquin County since 2010, including infrastructure and employee compensation.

Pandemic surge abates

But transportation and warehousing employment has started to slip as pandemic-era splurges on consumer goods abate. Across the U.S. it was down 0.9% in January from the previous year. In Stockton, it was down 5.4% year over year in December, according to the latest available data from the Labor Department. The city’s unemployment rate has jumped to 6.8% from a record low 4.4% in May 2022 before seasonal adjustment.

Transportation and warehousing fell sharply during the 2001 and 2007 recessions. If the same thing happens during the next downturn, it could wipe out much of Stockton’s progress. This is all fueling a debate among local leaders: stick with an industry that has been so good to them, or diversify?

Diversification won’t be easy. For years, bringing in more warehouses was the simplest, quickest way to expand the local economy, Gutierrez said. Businesses were clamoring for the space. The land was already zoned for industrial use. And there was the promise of new jobs and tax revenue.

“I don’t think we really took the time to step back and say: What is our vision here? Is this what we want to be?” Gutierrez said.

Globalized supply chains, the rise of e-commerce and the recovery from the 2007-09 recession created a huge demand for warehouses to store the goods that Americans covet and for trucks to ship those products. The Covid-19 pandemic, which prompted homebound consumers to shift their spending to goods and away from services, turbocharged that growth. Those gains were largely concentrated in midsize cities such as Stockton on the periphery of major metropolitan areas, places with cheaper land, lower labor costs, good transportation networks and proximity to customers.

The boom hasn’t exactly gone bust; construction recently wrapped up on a 1.2-million-square-foot spec warehouse, the largest such building ever built in Stockton, said Kevin Dal Porto, executive managing director at Cushman & Wakefield’s local office who is negotiating a lease with a prospective tenant.

“I would still characterize the market as quite healthy,” he said.

Less hiring, less building

But there are unmistakable signs of cooling. San Joaquin County broke ground on roughly 364,000 square feet of new warehouse space in 2023, down from almost seven million in 2022, according to CoStar, a real-estate-data provider.

Employbridge, a hiring firm, said labor demand was down about 10% in the fourth quarter of 2023 versus the previous year. So far, 2024 is off to a slow start, said Janelle Bieler, president of the firm’s West Coast division.

“Everybody is still cautious,” she said. “Nobody wants to overestimate and hire too many people.”

Job seekers, many of whom spent the past few years bouncing from job to job for higher pay, are now finding it harder to get hired.

Roughly 175 people showed up to a job fair on a wet morning recently, looking for work at a Goodwill warehouse next to the Stockton airport. Within a couple of hours, all but a few managerial positions had been filled.

“Kind of a bummer,” said Anthony Fernandes Hayes, 21, as he headed back into the rain. “I’ve been trying to get a job for a while now.”

“Four or five years ago I was dropping jobs like it was no one’s business,” said Juan Hurtado, 33, who was waiting for an interview. “Now it’s harder.”

Jeffrey Michael, an economist at the University of the Pacific in Stockton, said there is another risk beyond just a possible recession: “This is a sector that grew rapidly and created a lot of jobs, but it’s also known to be highly susceptible to automation.” Robotics companies are already working on machines to take over simple tasks.

Double down on warehouses, or diversify?

County leaders are responding by trying to upgrade local skills and diversify into less vulnerable sectors. The region plans to use state grant money to build training programs to prepare workers for better-paying jobs repairing those warehouse robots or in other manufacturing careers. The hope is to entice factories to open in Stockton, said Thomas Pogue, director of the Center for Business and Policy Research at the University of the Pacific.

San Joaquin County is also trying to beef up recruiting for its adult-education programs such as welding, auto repair, forklift operation or healthcare, said Patricia Virgen, executive director of San Joaquin County WorkNet, an agency that helps match job seekers and employers.

She remembers when one of the last sugar plants closed in neighboring Manteca about 30 years ago, laying off men who had worked there for decades making a good living with minimal training.

“It was devastating to see grown men in tears trying to figure out: What am I going to do next,” she recalled. “We are kind of on the cusp of that happening again.”

Elected officials are torn. Yes, warehouses brought jobs to a city that desperately needed them. But those jobs are precarious.

An October meeting of the San Joaquin Board of Supervisors highlighted the dilemma. County staffers had come before the board to ask how to manage future requests to build warehouses.

Some on the board were in favor of expanding the county’s industrial footprint.

“When you hear a truck go by, that’s the sound of money,” said Tom Patti, one of the supervisors. “The message should be we’re open for business.”

Others, though, were worried about betting the future on a single industry.

“You can bring up Detroit,” said Robert Rickman, another supervisor. “Detroit was a city that was just cars, right? Where is Detroit nowadays?”

In the end, supervisors punted: They instructed staffers to monitor the industrial real-estate market and report back occasionally.

Write to David Harrison at [email protected]