[JacobThreeThree]

Pretty sure Google uses dead reckoning geolocation tracking when no signal is available. So as long as your phone is outside of the bag at some point, you're being tracked even when the phone is in the bag, and Google can correct any errors in their dead reckoning calculations once a signal is found.

[BenjiWiebe]

It's possible, but I'd be surprised. Dead reckoning is terribly inaccurate. To get briefly acceptable accuracy, you need extremely precise sensors that you are reading very very quickly (which would make battery life plummet).