January
2008 Quarterly Forecast > Summary
Summary
By Ryan Ratcliff
This installment of the East Bay report looks at two issues. First, we close the book on 2007 by making a survey of labor markets trends in the various regions of the Bay Area. Even though the Bay Area has come down a bit from the rapid pace of technology job growth in 2006, it remains one of the fastest growing regions in California. Unfortunately, the East Bay has now slipped into the bottom half of the state’s job growth rankings, as the combination of an above average exposure to real estate weakness and the Bay Area’s overall slowing has created overall job loss at the end of 2007 -- a first since the dark days of the tech bust. However, we can’t entirely close the book on 2007 for a few months – all of this employment data will be substantially revised in March, and these revisions will be the primary focus of next quarter’s report. We use an alternative survey to make some educated guesses about how these revisions will affect the Bay Area’s economies: for the most part, it’s not good news. In general, real estate weakness is probably even worse than the current numbers indicate. And in a blow that may particularly hurt the Bay Area, the recent small but important gains in Durable Goods manufacturing in San Jose (and to a lesser extent the East Bay) may be overstated in the current data. Of course, these are just guesses – we really won’t know for sure until March.
The second portion of the report focuses on a national issue: will the tax rebate package currently being debated in Congress be the life preserver that keeps the U.S. economy above water in 2008? We offer two conclusions. First, there are several reasons why these tax cuts may not stimulate spending as much as Washington may hope. Second, the stimulus package really doesn’t change the fundamental logic of our forecast: as discussed in the summary of our U.S. forecast, our prediction of no recession in 2008 is mostly based on the lack of enough potential job loss to generate recession levels of unemployment. Nevertheless, we acknowledge that the probability of a recession has risen significantly in the second half of 2007, and the combination of fiscal and monetary stimulus provides some welcome insurance against the possibility of recession in 2008.
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