Northern California has created around 400,000 jobs in the past four years, bringing area payroll employment back to 2001 levels at over 3.1 million nonfarm workers. Job gains have been widespread over the past 12 months, with a quarter of those jobs coming from construction, information services and manufacturing between October 2013 to October 2014. The strong job growth in the region will drive the unemployment rate down to near 5.0 percent by year end. Tighter labor markets are expected to drive wage and income growth next year.
The growing demand for housing has increased the cost of living in the Bay Area. The supply of housing remained constrained with housing starts expected to decline by 1.6 percent this year. This gap between supply and demand has led to strong home price and rent appreciation. People have looked for more affordable housing than available in San Francisco by crossing the bridge into Oakland, leading to a drastic increase in rent prices there. According to Zillow, rent in Oakland was up 21 percent in October from a year ago. Declining housing affordability will remain a headwind for the area single-family housing market in 2015 due to moderate gains in home prices and expected increases in mortgage rates. However, we expect stronger growth in multifamily housing starts next year due to strong rental demand.
The recent downward trend in oil prices will shift economic growth from the energy producing central portion of the U.S. to the energy consuming economies of the east and west coasts. Lower oil prices will help Northern California manufacturing, an industry that employs approximately 280,000 workers. Lower prices at the gas pumps will act as a reverse tax for consumers leading to increased non-energy spending. A little more money in consumers’ pockets will help support the region’s service industries and retail sales in 2015.
Click here for the complete Northern California Regional Economic Update: NorthernCA 2014Q3.