EDA | Research | April 2008 Quarterly Forecast

East Bay Economic Development Alliance Quarterly Forcast

This forecast was prepared by:

Economist
Ryan Ratcliff
UCLA Anderson Forecast
www.uclaforecast.com

East Bay EDA Contact
Stephanie Brown
(510) 272-6843
stephanie@eastbayeda.org

East Bay EDA
1221 Oak St., Ste. 555
Oakland. CA 94612

Link to our Web site; http://www.EastBayEDA.org

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APRIL 2008 EDITION

INTRODUCTION

East Bay EDA is pleased to provide the East Bay Quarterly Forecast, authored by Ryan Ratcliff, Economist for the UCLA Anderson Forecast.

Click here to Download the PDF (529k) version of this report. This quarter's forecast includes executive summaries of the UCLA Anderson Forecast's National and California Outlooks, as well as a special section on the Port of Oakland authored by Jerry Nicklesburg, and a section on the "Credit Crunch" authored by David Shulman.

To view the Bay Area "by the numbers", download the Quarterly Indicators Sheet for Q1 2008. This one-page summary includes GDP, CPI, employment, housing, construction permit, hotel, airline passenger, and foreign trade data.

Click here to download Ed Leamer's presentation from the May 16, 2008 East Bay Forecast Meeting.

The East Bay Report

by Ryan Ratcliff

Summary

So far, 2008 has not been kind to the East Bay. Overall job growth has turned negative, homes sales are at record lows, and foreclosures continue to depress home prices. New employment estimates released last month have dramatically altered our picture of the Oakland MD in 2007. The good news: real estate related job losses were much smaller than preliminary estimates. Unfortunately, East Bay specialties like high-tech manufacturing and Education / Health Care are significantly weaker in the revised estimates, to the point where the bad news in non-real estate industries slightly outweighed the upward revision to real estate sectors. Instead of our previous story where the East Bay economy was a tug of war between real estate weakness and small gains in other sectors, these new estimates paint a more troubling picture for the East Bay: real estate weakness concentrated mostly in mortgage-related Financial Activities, coupled with a general malaise in local specialty sectors that are only indirectly tied to real estate. While it may be true for the state as whole, in the East Bay, what happens in real estate doesn’t seem to be staying in real estate.

Continue reading "Summary"

Labor Market Update

With the recent release of the benchmark revisions to California’s employment statistics, we can finally close the book on 2007. For California as a whole, the revised numbers for 2007 were worse than previous estimates, but did not contain any big surprises. Estimates of seasonally adjusted non-farm payroll growth in California between December 2006 and December 2007 were almost cut in half, revised from 78,800 (0.5%) down to only 40,700 (0.2%) – still positive, but just barely. Unfortunately, the new numbers show an outright decline in payroll employment through the second half of 2007, with January 2008’s level of non-farm payroll employment down 0.3% from its peak in July 2007. California job growth started decelerating in the summer of 2006, rather than in the spring of 2007, as the previous estimates indicated. This change in timing was almost entirely due to real estate related employment, with the slump in the Construction and Financial Activities sectors coming much earlier than we previously appreciated.

Figure 1: Year-over-Year Growth in CA Non-Farm Payroll Employment

Figure 2: Year-over-Year Growth in Oakland MD Non-Farm Payroll Employment

The East Bay / Oakland MD received one of the most surprising metro-level revisions. At first glance, the overall outcome was very similar to California. Like California, the decline in real estate related employment was moved forward from the spring of 2007 to the summer of 2006. As a result, the new figures suggest that East Bay has seen virtually no job growth over the past 12 months.

Continue reading "Labor Market Update"

The Building Slump in Context

After three years of non-stop media coverage of the stunning turnaround in California’s housing markets, it’s easy to get lulled into thinking that this is the worst housing disaster since Noah and the Flood. And in some ways it is. But in terms of the decline in building activity, our current situation isn’t that different from the 1990s. Given the emerging puzzle of the strength of the East Bay’s Construction industry in the face of a major decline in new building, taking a look back at previous building slumps can give us some insight into what to expect in 2008.

For some broad context, let’s start with California. Our goal is to compare the current decline in building permits and construction employment to what happened in the 1990s, so we’ll need to use some sort of index to put the two periods on equal footing. Figure 7 presents a graph in which the cyclical peak of a smoothed series for building permits is set equal to time zero, and the level of building permits at the peak of each cycle is set equal to 100 (these peaks occurred in Feb. 1990 and Oct. 2005). This allows us to compare both overall percentage decline in building permits (100 minus the current level), as well as the speed with which this decline occurred.

Continue reading "The Building Slump..."

Looking Forward

As we look for the light at the end of the tunnel, there are two issues to consider: how much more damage will we see in real estate related sectors, and how much worse will the non-real estate funk become? While the East Bay has seen a decline in building activity on par with the rest of California, it has bucked the trend when it comes to the employment impact of this contraction. While the boom in Construction employment may have become excessive in other regions, in the East Bay it looks more like a return to trend, suggesting that Construction losses may be less of a factor here than in most other parts of the state. Unfortunately, while Construction losses have been minimal, Financial Activities job loss in the East Bay is the second worst in the state behind Orange County, and looks to be spreading beyond real estate finance.

Continue reading "Looking Forward"

SPECIAL SECTION

Port of Oakland: Growth with Few New Jobs

By Jerry Nickelsburg

The Port of Oakland, and in particular the maritime port, has been a source of jobs for the region for some time. The U.S. Department of Transportation estimates that $25 Billion in goods passed through the port in 2003 making the port the 9th busiest in the U.S. and the fourth busiest container port. The port itself creates about 10,000 direct jobs, but has a much larger impact on jobs derivative of port activity including rail, trucking and warehousing jobs. One of the interesting observations about modern seaport activity is that growth in the throughput of the port often does not show up in growth in these derivative jobs.

Continue reading "Port of Oakland..."

CALIFORNIA

Uncharted Waters

By Ryan Ratcliff

The California economy put up some up some downright ugly numbers at the end of 2007. The unemployment rate has risen over 1% since the end of 2006, and overall non-farm payroll employment has been stagnant in the second half of the year, with a small drop over the last six months. The major question we explore in this California Report is whether this is a recession, or the beginnings of one. We review over forty years of history, and look for the common denominators among the previous recessions in California, and how they compare to today.

Continue reading "Uncharted Waters"

THE NATION

Why This Time Really IS Different, Part 2

By Ed Leamer

Since I took over the reins of the UCLA Anderson Forecast in July 2000, only twice has the recession risk elevated substantially, in 2000 and again in 2006. Remember that the official recession months of the 2001 downturn are April 2001 to November 2001. In December of 2000, we predicted a 60% chance of a recession in 2001. In April of 2001, we raised the probability to 90%. When the audience asked why only 90%, the answer was “humility; but trust me we are in a recession.” Meantime, almost everyone else said there was no recession, and no recession in the works. Then after the terrorist attacks on 9/11 many economists said this would cause a recession, even though the recession was already 5 months old and destined to live only two months more. It was not until December of 2001 that the National Bureau of Economic Research made it official: we really did have a recession in 2001. In other words, we got it right, and we stood alone back then.

Continue reading "Why This Time..."

THE CREDIT MARKETS

The Credit Recession

By David Shulman

For about a year, the U.S. economy has become enveloped in an ever widening and deepening credit recession, as distinguished from an economic recession, that is working to constrict financing to all but the most credit worthy borrowers. We have the specter of once proud financial institutions such as Citicorp, Merrill Lynch and UBS going hat in hand seeking cash from Sovereign Wealth Funds to replenish their loan loss depleted capital.

Continue reading "The Credit Recession"

The Cities of

INTRODUCTION

SPECIAL SECTION

CALIFORNIA

THE NATION

THE CREDIT MARKETS