Northern California Faces Trade and Housing Headwinds

Northern California labor markets are heading into 2015 with strong momentum. The region added another 104,000 nonfarm payrolls in the 12 months ending in December 2014. The area’s labor force gained a net 85,000 participants last year, its highest annual gain since 2000. The area unemployment rate remained elevated compared to pre-recession lows at 5.0 percent, indicating that some slack in the labor market exists.

The modern urbanism movement is reducing housing affordability, putting a squeeze on middle income earners. Business professionals are pouring into major metro areas, increasing demand for housing. However, the change in housing stock is not keeping pace with the inflow of professionals into Northern California, leading to higher home prices. Trulia measured housing affordability using a total monthly cost for housing which did not exceed 31 percent of a metro area’s median income. The study noted that the San Francisco and San Jose metro areas had some of the lowest housing affordabilities at 15 and 30 percent ,respectively, in November 2014. This is a long-term issue for the region as labor availability is dependent on affordable living.

The Port of Oakland is facing increased congestion due to labor contract negotiations between the Pacific Maritime Association and the International Longshore and Warehouse Union. Ongoing port congestion is impeding normal supply chains. Companies importing goods have to make the decision between suspending manufacturing operations, diverting shipments to Gulf and East coast ports, or using more expensive airfreighting. Businesses that deal with perishables are faced with product losses and cancelled orders. The Obama administration sent Labor Secretary Tom Perez to the Bay Area to help negotiate a deal after vessel operations were suspended for all West Coast ports from February 14-16. Further deterioration in negotiations remains a major downside risk to area port activity this year.

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Click here for the complete Northern California Regional Economic Update: NorthernCA2014_Q4.

 

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