Research Facts & Figures > Economic Forecasts & Updates > January 2011 Quarterly Update > Quarterly Update

EAST BAY QUARTERLY UPDATE

JANUARY 2011 EDITION

INTRODUCTION
East Bay EDA is pleased to provide its quarterly economic update and Q4 2010 indicators for the East Bay. The East Bay, California, and U.S. economic updates were prepared by Beacon Economics. The East Bay Quarterly Indicators are prepared by East Bay EDA.

For PDF Versions of these reports:

East Bay Economic Outlook, January 2011
East Bay Quarterly Indicators for Q4 2010
California Economic Outlook, January 2011
U.S. Economic Outlook, January 2011

LABOR MARKETS

While labor market conditions have started to improve somewhat in the nation, California, and parts of the San Francisco Bay Area, the East Bay continues to struggle. As 2010 came to a close, private sector employment in the East Bay reached its lowest point since the downturn began more than three years ago. Moreover, the region is lagging other major Bay Area markets. The South Bay has led the recovery with solid private sector job growth since late 2009. San Francisco, and the state overall, recently saw modest gains in private sector hiring. The East Bay, however, continues to shed jobs.

The East Bay’s lagging job market comes as little surprise given the region experienced one of the largest housing bubbles and subsequent declines in the state. This is in part due to the East Bay’s concentration of employment in the construction industry, which continues to face severe difficulty. At the peak of the bubble in 2006, construction employment represented nearly 7% of all nonfarm jobs in the East Bay. This compares with only 4.5% of total employment in San Francisco, 5.2% in the South Bay, and 6% in the state overall. Unfortunately, the higher the climb, the harder the fall.

The unemployment rate in the East Bay remained elevated throughout 2010. The rate dropped briefly in mid-2010 due to the hiring of temporary workers in connection with the 2010 Census. However, as these jobs evaporated, the region’s unemployment rate climbed back into the 11.5% range. Scratching the surface of this number shows that the unemployment rate is likely to remain elevated in the East Bay for some time. The stability in the region’s unemployment over the past three months is largely the product of discouraged workers dropping out of the labor force. This has a stabilizing short-run effect on the unemployment rate because as workers leave the labor force, they are no longer counted among the unemployed. However, as labor markets begin to improve, discouraged workers will re-enter the labor force, putting upward pressure on the East Bay’s unemployment rate through the initial phase of the recovery.

Interestingly, the East Bay has seen some growth in its total nonfarm payrolls over the past three months despite falling private-sector employment. This was driven purely by an increase in government jobs during the last quarter of 2010, and bucks the trend observed statewide. Throughout California, private sector jobs are on the rise while total nonfarm employment has been slowed due to declining government jobs.

Why is the East Bay escaping recent government job losses? Unlike the rest of California, the East Bay saw deep cuts to government employment, particularly state government, much earlier on. The region saw state government employment drop by more than 5,000 jobs in late 2007, and the sector continued to trend downward through 2008, 2009, and 2010.

In contrast, much of the rest of the state was resistant to cuts to government employment until well into the recession. San Francisco and the state overall didn’t see any significant job losses in government until well into 2009, and the South Bay held on into 2010.

Given the large decline in the East Bay relative to the rest of the state, it is not surprising to see some of those jobs come back. Through December, government had added back 3,775 of the more than 23,000 jobs cut throughout the recession. Despite these trends, and some small gains in administrative support, private education, health care, and other services, most of the East Bay’s industries continue to face job losses. Given the slow progress thus far, Beacon Economics is predicting a slow recovery for the region’s labor markets. Beacon currently forecasts that the unemployment rate will remain above 11% over the next few quarters, and won’t drop below 10% until well into 2012-13. The recovery has begun, but it will take time for the East Bay’s labor markets to bounce back from such a severe downturn.

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CONTACT This report was prepared by: Simon Yee Economic Development Analyst (510) 272-6342 East Bay EDA 1221 Oak St., Ste. 555 Oakland. CA 94612 For more information on the East Bay, click on www.eastbayeda.org

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