Economic Outlook Forecasts Continued Growth In The East Bay
At the East Bay Economic Development Alliance’s spring membership meeting on May 17, Dr. Christopher Thornberg of Beacon Economics presented his annual economic outlook for the East Bay. Dr. Thornberg noted that the East Bay economy had a strong 2017, and is expected to continue on a stable course throughout 2018, with a low chance of recession in the next 24 months. In their report, East Bay Economic Outlook 2018-19, Beacon Economics notes that the region is adding jobs at a solid pace, the unemployment rate is declining, and most industries have seen employment gains since the start of 2018. They project continued strong business and consumer spending activity throughout 2018, which we are seeing in the local San Leandro economy. Though housing construction has increased over the past year, more housing is still needed to address the affordability crisis and allow for businesses to hire more workers and expand.
Key points from the presentation included:
Employment: The East Bay region has transformed into a higher-skilled labor market more quickly than the rest of the state, while losing fewer of its mid-skilled jobs. From March 2017 to March 2018, nonfarm employment in the East Bay grew by 1.7% (19,200 jobs), outpacing the 1.5% growth in the nation over the same period. The East Bay’s 3.0% unemployment rate in March 2018 is well below the rate in the nation (4.1%) and the state overall (4.3%). The construction sector led in absolute job gains, increasing payrolls by 13.9% since March 2016, making it the fastest growing major sector over this period. Still, as unemployment has fallen in the East Bay, growth in the labor force has slowed significantly, increasing by just 200 people over the past year. High housing costs and low levels of housing construction are among the factors constraining employment and business growth in the East Bay.
Business: From 2016 to 2017, the East Bay performed exceedingly well in terms of spending activity. Taxable sales reached a record high of $48.9 billion, representing a 4.4% increase in spending over 2016 – a much higher growth rate compared to both San Francisco and the South Bay, which saw taxable sales grow by 2.3% and 2.1% during this period. The City of San Leandro has the 5th highest taxable sales in the East Bay, up 2.8% from 2016 to 2017. San Leandro has a diverse sales tax base, with three fourths coming from business to business, construction and transportation activities.
Housing: Thornberg emphasized that more housing, for all income levels, is needed to address the current housing crisis, which is based on insufficient new housing being constructed. Roughly 153,000 new households have entered the East Bay since 2000, compared to 132,000 new housing units permitted for construction during that same time period. This gap has become more severe in recent years, with nearly twice as many households moving into the East Bay since 2010 (85,753) than housing units permitted for construction during that time period (47,423). The supply constraints that have hindered the East Bay housing market in recent years are continuing to drive double-digit price appreciated in the East Bay. Beacon Economics predicts that prices will continue to increase at a steady pace with year-over-year growth coming in at 7.8% in the fourth quarter of 2018.
Population: The East Bay’s rapid population growth of previous years has slowed, as high housing costs have caused many local residents to consider moving. Between Q1 2016 and Q2 2017, the East Bay’s population grew by only .8%, in line with growth rates in the state (.8%) and San Francisco (.9%). The East Bay’s .8% populations growth in 2017 was a .3% decline from its growth rate in 2016 (1.1%). Additionally, recent population growth has not been nearly as high as previous years when growth rates hovered around 1.4% during the peak of the tech boom in 2013 and 2014.