Feature
by Michael Dardia
Editors Note: This article first appeared in the winter 2003 issue of the Bay Area Economics Pulse; printed in January 2003.
The small uptick in regional employment that occurred in the second quarter of 2002—and raised hopes for an impending recovery—has not continued into the third quarter. The second quarter’s increase in jobs has been offset by the third quarter’s losses, and the unemployment rate has increased regionally while easing at the state and national levels. Bay Area employment fell by 30,000, an annualized rate of 3.3 percent, leaving employment levels 46,000 lower than a year prior. Job declines resumed in both the San Francisco and San Jose metro areas, while employment elsewhere in the region remained essentially unchanged.
The localized concentration of job losses has been a strong characteristic of this recession and has highlighted the differences in the economic bases of the sub-regions in the Bay Area. These losses should be kept in perspective, however, as last year’s job losses so far are much smaller than those in the first three quarters of 2001. The pace of growth in the relatively robust Vallejo and Santa Rosa metro areas has slowed, but the battered San Jose area has seen far fewer job losses last year despite the third quarter’s disappointing slide. During 2002, San Francisco lost the greatest share of jobs, comparable to the 2001 rate and even exceeding San Jose’s rate. Overall, the regional economy appears to be in neutral and will likely remain so until the national economy picks up more steam. Both employment and unemployment trends have basically been flat since the beginning of 2002, with a small uptick in the spring.
The financial and health services’ sectors were the only major industries to show an increase in jobs during the third quarter, and neither of those had particularly strong growth. Government employment also increased at the same slow pace of 0.5 percent annualized rate, similar to the prior quarter. Construction jobs declined at an annualized rate of 4.6 percent, and high-tech manufacturing resumed its long slide at an annualized rate of 8.4 percent. Perhaps more worrisome was the reversal of the second quarter’s sharp gains in both hotel and business services, with losses in the third quarter of 9.3 percent and 6.7 percent respectively. Second quarter’s gains in these two industries were seen as hopeful signs that travel and temporary placements were precursors of a rebound.
The fall 2002 Bay Area Economic Pulse noted that the pace of recovery still remained uncertain, and the prognosis still remains cloudy. Some of the hopeful signs noted then, such as the increase in jobs and an increase in new orders for computers and communications equipment, have been reversed recently. After a strong increase from June to July, new orders for computers fell 1.4 percent from July to August and communications equipment orders fell 4 percent. The previous Pulse also cited the Silicon Valley Consumer Confidence Survey, which showed some erosion over the second quarter. A further decline in consumer confidence over the third quarter is now reported. Added to the potential concern about future consumer spending, the fact that the stock market continued to decline during the third quarter was another factor.
Reported commercial vacancy rates have stabilized, but there is concern that the effective vacancy rate is significantly higher when underutilized space still under lease is factored in. On the other side of the ledger, stocks rebounded sharply in October [though have since declined] and lower mortgage rates continued to put more cash into consumers’ hands through yet another large wave of refinancing. Lower mortgage rates have also helped to prop up home prices and sales activity throughout the region. This typically leads to a flurry of home-related purchases in the following months. Construction of new single-family homes was down about 10 percent from the previous quarter but remained 38 percent higher than the same period in 2001. The market for single-family homes declined slightly over the third quarter but sales volumes remain 15 percent higher and prices 12 percent higher than they were in September 2001. With the region so dependent on the overall level of business investment, any recovery will necessarily follow national trends.
The state’s budget crisis remains a cause for concern. The government sector has continued to support the job market this year, even if its contribution has slowed to a crawl this quarter. Many local governments, however, are preparing for layoffs in anticipation of budget cuts. With the Legislative Analyst’s Office projecting billions of dollars in shortfalls for the next two years, additional spending cuts and tax increases are likely to impact the pace of recovery. In addition, both a war with Iraq and further terrorist attacks remain important sources of uncertainty in the months ahead.
Reprinted courtesy of the Bay Area Economic Pulse. The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. Copyright © 2003 San Francisco Apartment Magazine