Economic Outlook Forecasts Steady Growth In The Short Term – 2019
At the East Bay Economic Development Alliance’s spring membership meeting on May 23, Dr. Christopher Thornberg of Beacon Economics presented his annual economic outlook for the East Bay. In its report, East Bay Economic Outlook 2019-20, Beacon Economics notes that the unemployment rate remained at a record low through the 2018 year, which pushed wages up slightly and expectations are for employment gains to continue and for the unemployment rate to remain at low levels in the near future.
With employment and wages on the rise, consumer confidence is expected to drive up further business activity. Though housing construction has increased over the past year, more housing is still needed to address the affordability crisis and allow for businesses to expand and hire more workers.
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 2018 to March 2019, non-farm employment in the East Bay expanded by nearly 18,000 jobs (1.5%), performing slightly better than California (1.4%).
The East Bay’s unemployment rate edged up from the historic lows witnessed in recent months to 3.4% in March 2019, slightly above last year’s 3.2% but well below the statewide average of 4.3%. The shortage of skilled workers in the region has put upward pressure on wages over the last year. Through the first three quarters of 2018, the average annual wage in the East Bay was $73,077—a 2.9% increase over the same period of 2017, according to data from the U.S. Bureau of Labor Statistics. Going forward, Beacon Economics expects the East Bay to continue to experience wage gains as the labor market increasingly tightens and employers boost wages to attract workers.
Business: From 2018 to 2019, the East Bay performed exceedingly well in terms of spending activity. The East Bay had its ninth consecutive year of gains in taxable sales reaching $53.2 billion, an increase of 7.3%, outpacing both San Francisco (4.1%) and San Mateo (4.0%). The City of San Leandro remains the 5th highest taxable sales City in the East Bay, with over $3 billion in taxable sales.
The East Bay broke its record of highest venture capital in 2018, with $5.1 billion invested in East Bay companies – double the amount collected in 2017. This is spurred by investments in the Clean Tech, Software, Biotech, and Medical Devices and Supplies industries.
Housing: The East Bay’s persistent undersupply of housing development continues to drive up home prices and apartment rents in a job- and amenity-rich region. Although residential permitting has increased for seven straight years, the Bay Area’s failure to meet growing demand for diverse housing types for decades means that the shortage endures, despite current construction activity.
In 2018, a total of 10,945 residential permits were issued by cities and counties in the East Bay, according to data from the Construction Industry Research Board (CIRB) as show in Figure 5.7. This represented a 7% growth compared to 2017 and marks the seventh consecutive year of increases in the number of total permits issued. Nearly 70% (7,581) were for multi-family units. Given the scarcity of developable low-density residential-zoned land in the East Bay, single-family permitting declined 21% from 2017 to the lowest level since 2014 and is far below the levels reached before the Great Recession. Alameda County had the greatest number of permitted units of any county in the nine-county Bay Area in 2018 with 7,818 permits, or nearly one-quarter of the total nine-county Bay Area.
Population: The population of the East Bay has increased considerably over the past few years though it slowed somewhat last year. According to 2018 data from the California Department of Finance, the counties of Alameda and Contra Costa make up 1.7 and 1.1 million individuals, respectively—a total increase of almost 300,000 in the last decade. In 2018, the East Bay crossed a threshold as its population increased beyond 2.8 million (Figure 6.1). From 2017 to 2018, however, the population grew by 0.9%—the smallest increase since 2010. The East Bay’s population growth outpaced California (0.8%), but lagged behind San Francisco (1.1%) and Santa Clara (1.0%) counties.
Much of the increase in population has been attributed to foreign (overseas) migration into the region, fueled by growth in employment opportunities amidst a tightening labor market. Net migration since 2008 has totaled 141,000 for the East Bay—71,900 from Alameda County and 69,100 from Contra Costa County.
In conclusion, the East Bay will continue to to enjoy economic growth in the near future due in part to ongoing in-migration and a growing labor market, but eventually the issues of labor scarcity and housing supply will need to be resolved in order to keep the region’s economy growing at a healthy pace.