Labor Market Update: Picking up the Slack

In percentage terms, the East Bay remains the fastest growing job market in the Bay Area; however, the combination of a slight slowdown in the East Bay and an acceleration of growth on the Peninsula has narrowed the gap significantly in recent months. 

Year-over-Year Growth in Non-Farm Payroll Employment

While the overall pace of job growth looks only slightly slower than the first half of 2006, this masks a substantial shift in the industry mix of those new jobs.  Real estate was still the major engine of growth in the East Bay economy in the first half of 2006, with Construction and the Credit Intermediation (real estate lending) industries accounting for 37% of the new jobs created.  However, from July to November, both of these sectors have experienced substantial slowdowns, with job losses in seasonally adjusted terms.  Like many other regions in California, real estate has gone from pulling the economy forward to actually holding it back – it’s just taken a little longer to happen in the East Bay than in most other parts of the state.  Unfortunately, this recent slowdown in real estate job creation has gone hand in hand with a similar reversal in retail employment.  In the first half of 2006, Retail Trade added 1,200 new jobs, but has added no new jobs aside from the seasonal surge that we would normally expect to see in the fourth quarter.

New East Bay Payroll Jobs by Sector (1000s Seasonally Adjusted)

(2^nd half 2006 estimated from July-Nov data)

But in spite of this slowing, several service sectors have stepped up to keep overall job growth healthy in the second half of 2006.  The Education/Health Care, Leisure/Hospitality, and Government sectors all saw more job creation in the second half of the year.  Surprisingly, while Leisure/Hospitality has more than doubled its rate of job creation in the second half of the year, it was the addition of more than 3400 new Government jobs that more than offset the loss of Construction-related growth.

East Bay Employment in State and Local Government, excluding Education (1000s, Seasonally Adjusted)

Thus, there are two key questions when looking forward at what to expect from East Bay job markets in 2007: how much more slowing will we see from the real estate side of the economy, and will these other service sectors continue to make up for that weakness?  We’ll consider the fate of the Construction sector in more detail in the next section, but we expect that real estate will continue to be a drag on the East Bay economy in 2007.  We are also skeptical that the service sector will continue to buoy the economy as it has in the second half of 2006.  In addition to the general reasons discussed in the California Report, it seems unlikely that any economy can long be sustained by local government as its primary source of growth.