A Strong Recovery in the Region

Since 2010, the San Francisco Bay Area has been among the leading regions nationwide in terms of employment, income and population growth. The region’s annual average wage and salary employment grew by 9.8 percent between 2010 and 2013, compared to 6.6 percent for California and 4.7 percent for the nation (see Figure 1.1). The Bay Area’s real gross regional product expanded by 10.7 percent between 2010 and 2013, compared to growth of 6.6 percent in California and 6.1 percent nationwide.

The California Department of Finance (DOF) estimates show population expanded more slowly, as the region’s underemployed population absorbed a portion of the new jobs. Between April 1, 2010 and January 1, 2014, the region’s population grew by 270,000, or 3.8 percent, while DOF estimates indicate that housing stock grew by fewer than 40,000 units, or only 1.4 percent. The region’s civilian labor force grew by 151,000 or 4.1 percent between 2010 and 2013, while the number of employed residents grew by 281,000 and total wage and salary jobs grew by 307,000. The larger growth in jobs compared to employed residents could indicate either some residents holding more than one job, residents who were commuting out of the region taking a job closer to home, or an increasing number of in-commuters.

Figure 1.1 Rate of Employment Change US, California, and Bay Area (1991-2013 and 2014 Estimate)

Source: ABAG from California Employment Development Department and US Bureau of Labor Statistics data

These statistics raise questions—and eyebrows. Does the recent strength of jobs imply job growth is accelerating in the long term? If this demand for labor continues, how can industry expansion of this level occur without a matching stimulus to the housing market? Will we able to add sufficiently to the labor force if this housing lag continues?

In fact, the trends for the most recent period are unlikely to presage an economy that will continue to outpace the state and nation, or the region’s population and housing growth. Employment trends tend to be far more volatile than population or household trends, as can be seen in Figure 1.2. The base year for looking at recent trends (and for Plan Bay Area), 2010, was close to the depths of the impact of the Great Recession on the region’s employment. The surge that followed is reminiscent of the period in the mid to late 1990s, when the region’s employment base was recovering from a recession tied to defense realignment and new Internet industries were emerging, with related software and computer design job expansion. Growth at this pace, in part, is catch-up growth from the downturn, largely filling in vacant stores and offices, while history suggests that in the long term a growth surge of this size is unlikely to be sustainable.

Population growth, while responsive to economic cycles through migration flows, has much more dampened shifts because much of growth continues through natural increase. Of the (net) addition of 281,000 Bay Area residents between 2010 and 2013 to the number employed, 131,000 are accounted for by the unemployed returning to work.

Figure 1.2 Population, Households, Employment, and Labor Force (1990-2013 and 2014 Estimate)

Source: ABAG from California Department of Finance data, Tables E-5 and E-8, and California Employment Development Department data

The change in households, like population, is relatively slow in responding to economic cycles. Growth is likely to slow during recessions, or in response to tight housing markets, as households double up or young adults avoid forming independent households. Building activity in response to growing demand may lag because of timing of permits or financing, extending the time it takes to construct new units. The following sections describe in more detail the economic, demographic, and housing situation in the region at the start of our next forecasting cycle.