Despite Signs of National Recession,East Bay's Economy Is Still Strong 

Economy reverts to "normal growth"; no real relief seen for the area's high housing costs

On May 4, the news came that after ten years of uninterrupted growth, the US economy was showing tangible signs of slowing down. The national unemployment rate increased to 4.5 percent as 223,000 jobs vanished--it was as if the entire city of Fremont had been called into the boss' office and handed a pink slip. The dot-com-fueled boom finally began to sputter; even more troubling, 401(k) retirement plans lost money for the first time in history. An entire generation of young professionals who had been trained to regard paper prosperity as an entitlement came face-to-face with one of the less sanguine lessons of adulthood: there's no such thing as economic security after all, and savings accounts exist for a reason.

But especially here in the Bay Area, those who still have jobs can perhaps be forgiven for hoping there might be a silver lining to the stormy clouds. In Alameda County, where only nineteen percent of all households can afford the median-priced home, the overheated economy has led to a stunning rise in the cost of housing, energy, gas, and other inelastic commodities. Will the cooling of the economy bring some relief?

Don't count on it. While the national economy may be stalling, everything from unemployment figures to retail sales and commercial vacancy rates indicates that the East Bay is merely settling down to a more sustainable, mature pace of growth. Even in the face of a looming national recession, we in the East Bay will likely see little interruption in the cycle that has ratcheted up the cost of living, even as wages falter in the race to keep up. In fact, the only people who will benefit from a temporary lull in the economy are the very rich; according to Alameda County's economic consultant Tapan Munroe, the only foreseeable softening in the real estate market will be among the luxury homes of Lamorinda, not two-bedroom apartments in North Oakland.


It's not that the Bay Area is immune from national trends. The San Francisco Chronicle, for example, recently noted that in the last four months, nine of the Bay Area's largest companies laid off 40,000 employees, the equivalent of the entire Chevron work force. But a closer examination of the labor numbers quickly puts the economy in its proper perspective. According to figures from the state Employment Development Department, Alameda County's unemployment level rose in April exactly three-tenths of one percent. That puts unemployment at 3.2 percent, or 1.2 percent shy of the statistical benchmark for full employment. Moreover, prior to April the jobless rate had remained under three percent for almost a year; not only have we reached near-historic lows in unemployment, we have been able to stabilize the jobless rate to boot. All the overhyped dot-coms exploding and spewing shredded business plans across the countryside have had no practical effect upon the labor force. (When you break the county figures down, you find that Oakland's unemployment rate is still considerably higher than the rest of the county, but at 4.7 percent, no one's complaining.)

According to Munroe, the diversity of the East Bay's economy has kept our fortunes steady. San Jose may be reeling from the Cisco layoffs, but the largest employers in Alameda County include not just Sybase and Sun Microsystems but UC Berkeley, Kaiser Permanente, and the post office. We have apparently absorbed the dot-com layoffs and are walking away relatively unscathed. "When you're a company town and times are great, that's terrific," Munroe says. "But if you overspecialize and then times are bad, you can suffer. Here, the economy is more balanced, less dependent on high tech. The good old energy sector is obviously doing very well. We're still driving our SUVs, and the energy companies in Richmond, they're money machines. Business services in general--accounting, consulting--are doing well. And real estate and construction are doing very well, although that's a two-edged sword."

Also encouraging is Oakland's fairly robust office rental rate, which dropped a mere ten percent even as San Francisco's rate plunged through the floor. According to a recent report by the real estate brokerage firm Colliers International, "commercial real estate markets throughout the Bay Area are experiencing a well deserved correction, so a ten percent decline is relatively healthy."

Retail sales in Berkeley also remained strong. According to the most recent available figures, Berkeley shoppers bought more than $1.3 billion worth of goods in the fourth quarter of 2000, an increase of $100 million over the '99 Christmas season. The commodity that led the way was auto sales, which typically involve credit--which means that local consumer confidence is as high as ever.


Not every sector of the East Bay economy is immune to the threatened slowdown. According to Keith Sutton, the business development director of the Economic Development Alliance for Business, the cutbacks at Cisco and Hewlett-Packard will send ripples of economic retraction across the Bay Area, and as orders for parts are canceled, many of the East Bay's electronic component manufacturers will take a hit in the coming months. In addition, food processing is one of the East Bay's most important industries, but as the summer's high temperatures begin to strain the frail electricity grid, many processing plants may start laying off workers. "The energy crisis is going to reach across some sectors that normally aren't touched [by recessions]," Sutton says. "Food processing is incredibly important in the East Bay, and it's usually recession-proof because people need to eat. But the processors are locked into contractual agreements to transport food according to a schedule and a fixed price, and the price of natural gas is something they can't control. The only thing they can control is employment [costs]. It's just hard to predict; an awful lot depends on what the temperatures are like in the summer."

Still, Sutton is entirely confident about the fundamental soundness of the East Bay's economy. "What looks like a recession is actually cutting back to a normal growth mode," he says. "We recently called a half-dozen economists, and virtually all of them said that what we're doing is slowing to a sustainable level. None of them mentioned the word recession. And all we have to do is develop a new wireless technology that everyone has to have, and growth will be back to its old level. That's what we've built the New Economy on."

"This is a natural correction to overindulgence and fantasy in the high-tech sector," Munroe says. "We'll get a lot of repossessed cars from the parking lots of dot-coms, and when people are looking for jobs, they're looking for health benefits and steady vacations instead of stock options. In the restaurants, the ordering behavior has changed; people are buying cheaper wines. Meatloaf's back on the menu. That's the unofficial Tapan gauge of economic health. But I don't expect the end of Western Civilization. Most of the country would be happy to have three-percent unemployment."


Perhaps. But they certainly don't envy a cost of living that is continuing to rise. By the end of the summer, a gallon of gas is projected to cost three dollars. Two-bedroom apartments in South Berkeley and around Lake Merritt are going for $1,600 a month. Everyone expects their energy bills will punch through the roof in a few short months.

And if the middle class is feeling the pinch, imagine how tough life is for those less well-off. According to a recent study by the Public Policy Institute of California, the poorest quarter of California's residents are actually earning less in real dollars today than they did in 1969, despite a decade of economic growth. Deprived of the education needed to land a job in the New Economy, the East Bay's janitors and landscapers have found themselves squeezed between the staggering cost of living in Oakland and their own stagnant wages. And according to tenants rights attorneys, a softening national economy has done absolutely nothing to stem the wave of evictions in Oakland and Berkeley's working-class neighborhoods.

"How will a major recession affect our clients?" asks Laura Lane, a tenants rights attorney with the East Bay Community Law Clinic. "Well, things couldn't be much worse for poor people. We're swamped with work these days. In the last year and a half, we've seen more and more middle-class people getting evicted as well as poor people, as landlords try to turn their units into high-end apartments. People come in complaining that they haven't paid their rent because they just finished paying off their PG&E bill. We have drop-in [eviction law] clinics at the courthouse on Mondays and Wednesdays, and our lawyers are seeing twenty or thirty people a day and still turning people away. And those are just people who are in the midst of evictions. We've doubled the number of our tenants rights workshops, and they're still filled to capacity. Everyone's fighting so hard to stay in their tenancy, because once they lose it, where are they gonna go?"

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