Silicon Valley’s economy should rebound from the recession before the rest of the state and Bay Area, thanks to an infusion of venture capital and increased demand for its high-tech products, an economic forecaster said Friday.
“It’s clearly bouncing back faster than either the East Bay or San Francisco,” said Jon Haveman of Beacon Economics, a San Rafael economic analysis company. But it’s going to take a few years before employment returns to its pre-recession levels, he warned.
Haveman’s prediction of the valley’s gradual return to growth, delivered at the Bay Area Council Economic Institute’s annual forecast meeting in Santa Clara, was both upbeat and cautious.
While the valley was “late to the recession,” it is among the first coming out, Haveman said. The housing bubble wasn’t as bad in the valley as it was in other parts of the state, and manufacturing output is rebounding, he said.
Manufacturing job growth should continue here, he said, but it won’t pull the economy out of the slump. That’s because the valley is good at developing new products, which requires fewer jobs than manufacturing, which it tends to do elsewhere.
A positive sign is venture capital — the valley gets 40 percent of all U.S. venture money — and “an awful lot of cleantech venture capital money is coming to Silicon Valley. That bodes quite well,” Haveman said.
Unemployment will be still be higher than 6 percent at the end of 2015, he said, because people who have given up looking for work will start looking again, adding to the normal increase in job seekers driven by population growth. The region saw a 7.8 percent decline in jobs during the recession, he said.
But the valley may return to pre-recession employment levels by 2013, Haveman said.
Employment in the information sector, which includes telecommunications, Internet service providers, Web portals and data, down 8 percent during the recession, has returned to its normal growth curve, he added. “There will be strong growth in information employment,” he predicted.
In the long run, the region faces “an age-related challenge,” a hollowing out of the ranks of experienced workers in the middle-age range, he warned, as they retire with a smaller group of workers behind them to fill the gap.
“It’s a little bit troublesome, but the region has always shown a capacity for importing labor when it needs it,” Haveman said.
Nationally, he said he doesn’t see much of a threat of a “double-dip” recession. That could change if masses of people decide to walk away from their underwater mortgages, or if the federal government doesn’t continue the tax breaks in the stimulus plan and the Bush tax cuts for a few more years.
“The bottom line is only through gross negligence of our policymakers do we get a double dip. I don’t believe it’s going to happen. I believe the tax cuts in some form or other will be extended,” he said.
Beacon is forecasting 2 to 2.2 percent national economic growth, not enough to make a significant dent in the unemployment rate. It takes about 5 percent economic growth to reduce unemployment by 1 percent, Haveman said. “It will be well into 2015 before we see the unemployment rate down to pre-recession levels.”
The Bay Area Council and Beacon have two more forecast events scheduled, one in San Francisco on Monday, and another in Oakland on Nov. 9.
Contact Pete Carey at 408-920-5419.
