Research Facts & Figures > Economic Forecasts & Updates > January 2009 Quarterly Forecast > Employment, Levan Efremidze, Economist, UCLA Anderson Forecast

East Bay, Bay Area and California Employment

The East Bay & California

The industrial structure of the East Bay economy is similar to that of California, except that the East Bay’s construction, government, and education, health care & human services sectors tend to be somewhat more important and the consumer sectors of retail and leisure & hospitality tend to be somewhat smaller. This explains why East Bay labor markets have been performing less well than California up until September, and why they are much more similar in performance today. Prior to the recession, job loss in residential construction was more heavily concentrated in the East Bay. Now, job loss in consumer related sectors, while larger in percentage terms for the East Bay than for the state, are a smaller component of the total East Bay employment picture.

To uncover an explanation for the difference in retail sector losses between the East Bay and California, we examine the retail employment by sub-sector. The clue comes from the fact that furniture and home furnishings retailers were more prevalent and suffered a greater percentage loss in employment in the East Bay than in California. Rapid building of retail establishments, particularly home furnishings is a characteristic of an area which is expanding with new home construction and new housing developments. Retailers chase, and sometimes get ahead of, new development. The growth of the California economy in the first 8 months of 2008, albeit slow, allowed these retailers to hold on. As consumer demand collapsed, this holdover from the expansion in the housing market showed up in a greater than average contraction in retail employment. The more rapid loss of jobs in retail in the 4th quarter is evidence that this imbalance is correcting itself rapidly and that future job loss in consumer related sectors should mirror those of California.

The East Bay & The Bay Area

Overall Bay Area employment has been declining since April 2008. In the fourth quarter, the three sub-regions – San Francisco, San Jose/Silicon Valley, and the East Bay – are no longer a mix of positive and negative employment trends as San Francisco joined the rest of the Bay Area and lost jobs in the retail, construction, finance and hospitality sectors. The aggregate Bay Area annual loss amounted to 52,863 jobs, 60% of which were in the East Bay. Until the 4th quarter the East Bay, led by a contraction in the construction sector, had the highest quarterly rates of decline. Since the 2006 peak of 74,000 jobs, East Bay construction employment has shrunk to 64,000 jobs. Even after this loss of jobs construction represents 6.3% of total East Bay employment as compared to 4.8% in San Francisco and 4.6% in San Jose. The job market continued to be weak in the East Bay in the 4th quarter but the steepest rate of decline in the Bay Area was recorded in San Francisco. The large drop in San Francisco was attributed to the consumer related sectors of trade, transportation & warehousing, and food service & accommodations.

The financial panic on Wall Street and the uncertainty with regard to economic policy in Washington during September and October of 2008 caught forecasters by surprise. Absent this panic and the direct consequence of a collapse in consumption, we had expected a more moderate decline in East Bay employment in particular and Bay Area employment more generally. Scared households and worried businesses reduced spending and began conserving cash for the uncertain future. Expectations of a disappointing holiday sales season caused retailers to reduce staff, scale back or completely halt hiring in November and December. Consequently in the East Bay, as in the rest of California, the retail sector shed the most jobs of any sector. This represents a dramatic change in the labor market dynamics of the East Bay. Now, as opposed to losses dominated by construction and finance during the first three quarters of 2008, over half of the job loss is in consumer related industries.

Within the East Bay the acceleration in job declines during the last quarter is primarily observed in retail, wholesale trade, durable manufacturing, temporary employment services, and the information sector with the bulk of the job loss coming in retail and employment services. On the other hand, the previously hard hit finance sector shows slight improvement. But, it is premature to predict the stabilization of the finance sector in light of the on-going financial crisis.

The education and healthcare & social services sector was the only category that added jobs during the last 12 months. The 1,200 additional jobs were not enough to offset losses in other categories during 2008. Overall, though, this sector is not expected to deliver sufficient gains to offset job losses in other sectors in 2009.

Next: "A Comparison of Recessions"