EAST BAY OVERVIEW

The building boom made the East Bay the bright spot in the Bay Area economy over the past few years. Unfortunately, what the boom giveth, the bust taketh away: real estate has become a serious drag on the East Bay economy, as the combination of a slow but steady loss of real-estate related finance jobs has been exacerbated by the long-anticipated downturn in construction employment. Year-over-year growth in non-farm payrolls has slowed to just above 1%, with the unemployment rate rising to 4.5% after bottoming out at 4% near the end of 2006.

East Bay housing markets are a classic half-full/half-empty story. The optimist will note that home prices are volatile but mostly flat, and the precipitous decline in sales volumes seems to be slowing. However, the pessimist will point out that foreclosure activity in Contra Costa County is among the worst in all of California, and that the worst of this problem is yet to come.

Over the next two years, we maintain our forecast that real estate weakness will keep the East Bay economy in the doldrums through 2008, but will not be enough to generate a full-blown recession. In this installment of the East Bay Report, we also take a longer-term view of the Bay Area economy, and explore some of the economic implications of the retirement of the baby boomers. The high proportion of older residents in the Bay Area will put the pinch on labor force growth over the next 35 years, and the different spending patterns of these retirees may well lead to a reshuffling of the internally-oriented parts of the economy.