EDA | Research | July 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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JULY 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 "Subprime Economy", authored by David Shulman.

To view the Bay Area "by the numbers", download the Quarterly Indicators Sheet for Q2 2008. This one-page summary includes GDP, CPI, employment, housing, construction permit, hotel, airline passenger, and foreign trade data.

The East Bay Report

by Ryan Ratcliff

Summary

Most of the news from the East Bay has gone from bad to worse in 2008Q2. The moderate job loss of the first quarter has deepened, and house prices continue to plummet as distress sales dominate local resale markets. For the most part, the job losses in the East Bay have come from a combination of deepening losses in the usual suspects of the housing slump (Construction and Real Estate related Financial Activities), some spreading collateral damage (housing related Retail Trade), and some weakness in Government employment related to the restructuring of the Lawrence Livermore National Laboratory. As in the rest of California, “what happens in housing stays in housing” is still a reasonable description of where the main problems areas are, but unfortunately there is little growth to offset these areas of weakness in the East Bay Economy.

Oddly enough, there is a small dose of good news from the East Bay’s housing market. While the surge in foreclosure activity has driven prices down faster than at any time in history, the upside is that for the first time in a long time, sales volumes in the Bay Area are rising – Contra Costa County is actually up relative to last summer’s sales levels, as the steep drop in prices has brought some bargain hunters back to the market. Unfortunately, foreclosure activity is likely to continue rising through at least the rest of the year, keeping prices weak until at least this time next year. But the increases in sales volume are at least a flicker of light at the end of a very dark tunnel.

The 3 Phases of the Bay Area Housing Slump

By most measurements, the Bay Area was the last of California’s housing markets to peak. Mostly, this is because it was the last market to get going: in the aftermath of the tech bust, the Bay Area actually saw a small dose of home price depreciation in late 2001. After some ups and downs in 2002, it was only in late 2003 that the Bay Area experienced the dizzying acceleration of price growth that was sweeping the rest of the state. Examining the path of Bay Area home sales and home price appreciation (Figures 2 and 3) suggests that the housing market decline in the Bay Area has proceeded in three phases.

Figure 1: Year-over-Year Change in Median Sales Price of All Homes by Region

Continue reading "The 3 Phases of the Bay Area Housing Slump "

Bay Area Job Market Update

For a long time, we’ve argued that the deepening slump in California’s housing market would take its toll on the wider economy. The slump in building activity would lead to substantial job loss in Construction, while the contraction of home sales and the tightening of lending standards would lead to weakness in real estate related Financial Activities. Qualitatively, this has turned out to be a fairly accurate description of the California labor market’s long, slow slide over the past two years. Quantitatively, the job loss in Financial Activities has far exceeded our expectations, losing almost as many jobs as Construction.

At the time of our last quarterly report, year-over-year non-farm payroll growth in California had turned negative, as weak-but-positive job growth in the Bay Area (San Francisco MSA) and Central Valley (Sacramento, Stockton, Modesto, Fresno, and Bakersfield MSAs) finally succumbed to the increased pace of job losses in Southern California (Figure 12). Since April, this situation has deteriorated even further, as both the Bay Area and Central Valley have seen year-over-year job growth grind to a halt in 2008Q2, while the contraction in Southern California employment has continued. In all three regions, non-farm payroll employment is below last June’s level.

Figure 12: Year-over-Year Growth in CA Non-Farm Payrolls by Region

Continue reading "Bay Area Job Market Update"

Looking Forward

The rest of 2008 is going to be pretty tough on the East Bay, as an overdue contraction in Construction employment comes together with continued weakness in Financial Activities and the beginnings of another ice age in State Government hiring, as the one-off losses related to the Lawrence Livermore National Laboratory are overtaken by the more widespread weakness expected when Sacramento finally passes a budget...

Continue reading "Looking Forward"

CALIFORNIA

The California Report: Did it Really Stay in Housing?

By Jerry Nickelsburg

Let’s turn our attention to California by first taking a look at employment and unemployment for the first four months of 2008 as compared to the same period in 2007 and going through some of the numbers. California has been adding an average of 20,000 net new labor market participants per month over the last year but only creating about 3,500 new jobs per month. Unemployment has jumped from 5.25% in the first quarter of 2007 to 6.28% in the first quarter of 2008 and it has been at 6.2% since March. The current level is still substantially below the recession levels of near 7% experienced in 2002-2003, but a big jump nonetheless.

Continue reading "Did it Really..."

THE NATION

Muddied Waters

By Edward E. Leamer

Until Friday, June 6, when the May unemployment level was released, I had written the title “Don’t Celebrate; What Comes Next Isn’t Going to Cheer You Up” as if the recession risks had substantially abated and we needed to shift focus to what comes next. Sure, the unemployment numbers in 2007 had risen, but in a rather mild way, consistent with our view that this time the troubles in housing would produce a disappointing outcome but not the catastrophic features of traditional recessions. But that May increase in the unemployment rate to 5.5 from 5.0 has shocked Wall Street and me too. That 5.5 is the only number I know that is clearly in the recession range. And just when I was about ready to take a victory lap, carrying my no-recession banner!

Nevertheless, I am holding on to what is now a shaky view: no recession this year.

Unemployment Rate: Recession in Gray

Continue reading "Muddied Waters"

The Subprime Economy

By David Shulman

Although the economy will likely avoid falling into a formal recession, the economic outlook through the end of 2009 is decidedly subprime. In contrast to activity based recessions/slowdowns which are largely triggered by the tightening of monetary policy, recessions/slowdowns that are induced by asset price deflations are less sensitive to an easing of monetary policy and tend to have very long tails in the sense that it takes the economy a long time to fully recover. As a result, we forecast that growth in real GDP from 2007:3Q to 2009:4Q will average a tepid 1.2%.

Continue reading "The Subprime Economy"

The Cities of

INTRODUCTION

CALIFORNIA

THE NATION