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April 2009 Quarterly Forecast
> Summary
The East Bay economy is still in the midst of a recessionary adjustment driven by a multitude of economic forces. During the first half of 2008 the excesses of the preceding economic boom reached a critical point and households, businesses, and banks suddenly reversed their behavior from optimism and risk taking to pessimism and risk aversion. While the federal government is attempting to stimulate the ailing economy and the banking system, the state and local governments are slashing budgets and raising taxes. An enterprise economy like ours is prone to cyclical behavior, but this particular recession is more severe than ten others we have seen since the great depression; it is driven by the household debt defaults, housing decline, banking crises, and it is global. Previously a beneficiary of the economic boom, the East Bay is now bearing its share of adversity.
To ascertain which way the East Bay economy is heading, we assess its last quarter performance by looking at labor market conditions, income growth, tech-sector performance, housing sector, and past recessions within the context of major economic forces relevant to its economy in the near term. In the process of doing this, we compare the East Bay to neighboring regions, California and the U.S. This report is about the local East Bay economy, but when the local data is not available, we will use as proxies relevant national or state indicators to show important transmissions through economic relationships.
The forecast for 2009 is still rather gloomy for the East Bay economy, with the expectation of turnaround at year’s end. Employment will continue to shrink throughout 2009, and real income and taxable sales will contract. The unemployment rate will climb above 11.6%. The East Bay will start recuperating at the end of 2009, as the housing market, exports and business sentiment perk up.
In our research of national, international and California economies, we identified key economic factors driving employment, output and income changes in the East Bay. Among the most important factors are household spending -- presently influenced by the personal balance sheet adjustment and rising personal savings rate, the plummeting business investment due to fear and uncertainty of the economic climate, the ongoing crises in housing and credit markets, plunging international trade, and net effects of rising federal spending but declining state budgets. In aggregate, the relative strengths of these factors produce an outcome that may turn out to be positive or negative. On a quarterly basis, the aggregate effect at this point is still negative for East Bay and the nation, and is likely to stay so till the end of this year.
Next: "Consumers Are Cautious, but Not in Panic"
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