October 2007 Quarterly Forecast > Bay Area Job Markets

BAY AREA JOB MARKETS

By Ryan Ratcliff

Unemployment in California has been rising steadily since the beginning of the year, and non-farm payroll growth has slowed to a crawl in the last five months. While the Bay Area job market has been the silver lining in the cloudy California economy for a year and a half, the luster is starting to fade.

Figure 1: Year-over-Year Non-Farm Payroll Job Growth

Source: CA EDD, UCLA Anderson Forecast

Figure 2: East Bay (Oakland MD) Non-Farm Payroll Job Growth

Source: CIRB, UCLA Anderson Forecast

Every region in the Bay Area is seeing slower job growth in the middle of 2007. In the East Bay (Oakland MD), the job market continues to mirror the larger statewide trends. Unfortunately, that also means a substantial slowdown in payroll job growth in recent months. The sources of this slowdown are the usual suspects. Seasonally-adjusted job losses in Construction employment have accelerated, and now total 7600 since the beginning of the year. Nearly half of those losses occurred in July and August. As we’ve pointed out before, the wide seasonal variation in Construction employment means that these numbers require careful handling.

Figure 3: Oakland MD New Jobs by Sector (1000s SA)

Source: CA EDD, UCLA Anderson Forecast

With this in mind, Figure 4 presents the raw employment data for the Construction sector, along with the seasonally-adjusted series. Let’s start with the 2004-2005 period to get our bearings. The difference between the two lines gives us a good feel for the seasonal component: Construction employment tends to bottom out near the end of winter, adds a lot of jobs through August/September, and then sheds most of those jobs through the end of the year. To put it another way, the two lines cross in June and December: from December to June, we know that part of the drop in employment we’re seeing is seasonal, just as we know that many of the jobs the Construction sectors is adding in summer will be cut in the fall. When we take away this predictable seasonal variation in 2004 and 2005, we’re left with the seasonally-adjusted series, which shows steady growth over the period.

Figure 4: Oakland MD Construction Employment (1000s)

Source: CIRB, UCLA Anderson Forecast

2006 is when things start getting complicated in the East Bay Construction sector. In contrast to the previous years, employment in March and April stayed near the low of 70,000 reached in January, while the “usual” seasonal pattern would imply that Construction employment should already be rising by then. Thus, the seasonally-adjusted series shows a sharp decline in 2006Q2. However, seasonally-adjusted Construction employment is steady for the second half of the year, implying that the 2500 jobs gained and lost over that period represent nothing except the usual seasonal pattern.

Which brings us to 2007: Construction employment in the summer of 2007 was actually lower than in December. This implies that the underlying trend in the Construction sector must be so negative that it overwhelmed the usual seasonal trend for employment to rise through the summer. But this also suggests that we need to take this estimated 7600 Construction jobs lost since the beginning of 2007 with a grain of salt. Actual job loss in the unadjusted series is actually only about half that number -- the other half of the 7600 comes from job growth we “should have seen” given the seasonal cycle. Obviously, there are arguments in favor of using both numbers. On the one hand, if we want to get at the underlying trend in the Construction sector and compare it to trends in other, less seasonal sectors, the seasonally-adjusted number is the way to go. However, in periods of job loss such as we’re seeing now, some observers feel that including outright job loss and the jobs Construction “should have gained” may overstate Construction weakness. But while we can argue about exactly how to measure the extent of the job loss, there is no argument that the Construction sector in the East Bay has gone from an engine of job growth to a drag on the rest of the economy, and this drag has increased significantly in the second half of 2007.

The rest of the East Bay job market has also seen a continuation of the themes from our last report. Once again, the Government sector was the biggest source of new jobs in the first two months of 2007Q3, thanks almost entirely to the continuing boom in local government education hiring. The Education and Health Care continues to be a steady source of employment growth, while lending-related job losses continue to keep Financial Services weak.

However, two important sectors have shown renewed signs of life in the third quarter. Professional/Business Services(PBS) job growth in July and August has substantially outpaced the early summer – but not for the reasons you might expect. While earlier strength in this sector has come from computer-related consulting, the recent burst of job growth has come from everything else in the sector. Unfortunately, the level of disaggregation in the payroll employment data doesn’t give us any more insight than that. Similarly, a burst of hiring in the Accommodation and Food Services category made the Leisure and Hospitality sector the second biggest source of private-sector job creation in the East Bay so far in Q3 – outpacing Professional/Business Services.

The San Francisco MD (San Francisco, San Mateo, and Marin Counties) has also seen more of the same: a slight slowdown in growth, following the same sectoral patterns as earlier in the year. On the real estate front, Construction-related job loss has not really been a factor, though Financial Activities did show overall job losses in July and August, for the first time in 2007. PBS continues to be the major source of job growth, as the service side of the technology economy continues to claw its way back from the 2001 recession. Though the rise and fall of the tech sector has been a rollercoaster ride over the past ten years, the levels of PBS growth we’re seeing now are close to “normal” – if any sense of normal can be gleaned from Figure 5.

Figure 5: San Francisco MD New Jobs by Sector (1000s SA)

Source: CA EDD, UCLA Anderson Forecast

But while the rest of the Bay Area has essentially been more of the same, the San Jose MSA (Santa Clara and San Benito Counties) has seen a significant slowdown in job growth in the last five months. Of course, even with this slowdown, San Jose is still one of the fastest growing metros in California. Construction job losses are part of the story, but each of the non-real estate sectors that had been booming in 2007Q1 has seen a major slowdown in the third quarter. The PBS sector actually lost over 1000 jobs for the first time in recent memory. While this turnaround in one of the metro’s core industries may initially cause some alarm, a closer look suggests that both the early year boom and the more recent slowdown are transitory. The Professional/Technical Services component of PBS has shown steady growth throughout 2007, but the Administrative Services component has seen an up-and-down swing of 2000 jobs over the course of 2007. This swing is almost entirely from the highly volatile Employment Services industry, which includes temp agencies.

Figure 6: San Jose MSA New Jobs by Sector (1000s SA)

The slowdown in Retail Trade and Leisure and Hospitality employment growth in San Jose is another case of interpreting job losses relative to normal seasonal patterns. The holiday season in 2006 showed less of a seasonal surge in retail hiring than usual, but also saw less of an employment decline in the early months of 2007 – giving us the bump in seasonally-adjusted employment in 2007Q1. The slowdown in recent months comes in part from the mild decline in Retail Trade employment in August, at a time of year when employment should normally be rising. Similarly, the recent decline in Leisure and Hospitality employment comes from a less-than-normal increase of employment in the Arts, Entertainment, and Recreation category. Like the Construction sector, interpreting each of these declines is a bit tricky: when jobs in an industry grow by less than we expect, is it really job loss?

Figure 7: San Jose MSA Retail Trade Employment (1000s)

Source: CA EDD, UCLA Anderson Forecast

Figure 8: San Jose MSA Leisure and Hospitality Employment (1000s)

Source: CIRB, UCLA Anderson Forecast

While each sector’s slowdown has an element of statistical blippery to it, there’s no way around the conclusion that just about every sector of the San Jose economy seems to be slowing relative to the beginning of the year. Since much of San Jose’s recent boom has been rebuilding the economy at the epicenter of the tech collapse, some slowdown in job growth was inevitable as the local economy returns to normal. But even though year-over-year employment growth has dropped by more than 1 percent, San Jose remains one of the fastest growing of California’s major regional economies.

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