EMPLOYMENT UPDATE

While California’s year-over-year growth in non-farm payrolls has been slowing since the middle of 2006, the Bay Area had been largely immune to this slowdown thanks to recovery of the technology side of the Bay Area economy.  This only seems fair.  The Bay Area continued to suffer from a tech sector hangover long after the rest of California was shrugging off the 2001 recession, so now the Bay Area’s tech recovery should be helping when the rest of California is starting to slow.  However, the data from the first half of 2007 show that the Bay Area has not been able to completely ignore this slowdown.  Unemployment has been edging up for most of the year, and non-farm payroll growth is slowing throughout the Bay Area.  Even with this slowing, the San Francisco and San Jose metros still rank among the fastest growing regions of California.  However, the East Bay looks much more like the rest of California, largely because its reliance on real estate as an engine of recovery in the past few years has been much more like the rest of the state.

As we have already noted, the main employment story in the East Bay in 2007 continues to be the drag from real estate, as the slow bleed of Financial Activities jobs since 2005 has been compounded by job loss in Construction in 2007.  The trends in both these industries mirror what we’ve seen throughout the state.  In Financial Activities, job losses in mortgage lending and real estate have wiped out the gains made in non-real estate finance.  Similarly, while non-residential construction is still adding jobs, these gains have been overwhelmed by job loss in the specialty contractors most closely tied to residential construction, as well as the general contractors whose primary business is home building.

Compared to other regions in California, the East Bay’s declines in real estate employment are about average: slightly better in Construction, but slightly worse than average in Financial Activities.  The East Bay’s real estate related job losses are the worst of the Bay Area metros, but not nearly as bad as places like Stockton and San Diego.

Figure 4: Year-over-Year Growth in East Bay Real Estate Related Employment (Construction + Credit Intermediation + Real Estate)

Source: CA EDD, UCLA Anderson Forecast

Table 1: Percentage Change in Employment in Construction and Financial Activites for Selected Counties / MSAs, 3/06 to 6/07

Source: CA EDD, UCLA Anderson Forecast

This real estate weakness has led to a case of the blahs in most other sectors of the East Bay economy, with job growth in many sectors continuing the trend of slowing we’ve seen in the past twelve months. However, there have been some bright spots. The biggest source of new jobs in the East Bay economy continues to be the Government sector, fueled by increased hiring in Local Government Education. Within the private sector, the continuing recovery of Computer Design related employment in the East Bay made Professional/Technical Services the biggest source of new private sector jobs, with continued hiring at local hospitals giving the Education/Health Care sector the second place spot.

But perhaps the biggest surprise across the sector-by-sector comparison has been the resurgence of the Retail sector in the East Bay. After languishing for most of 2006, this sector was the third biggest source of private sector job growth in the first half of 2007. Part of this surge comes from the seasonality of the retail business: when retailers chose to reduce 2007Q1 employment by less than usual after the holiday season, it shows up as a seasonally-adjusted increase in employment. But this statistical quirk is only part of the story. Most of the action in East Bay retail in 2007 has come in the General Merchandise category, which is primarily made up of department stores. The second half of 2006 saw a major decline in year-over-year job growth in this category as consolidation in the department store category took its toll on employment, which makes the bounce back in 2007 look more like the re-absorption of displaced retail workers than a more permanent acceleration of employment growth.

Figure 5: East Bay Retail Trade Employment (1000s, NSA dotted line)

Source: CA EDD, UCLA Anderson Forecast

Figure 6: Year-over-Year Growth in East Bay Gen’l Merchandise Retail Trade Employment

Source: CA EDD, UCLA Anderson Forecast

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