Bay Area technology firms started the year with a less sturdy footing. A slowdown in the Chinese economy strained global financial markets at the end of 2015. Tech stocks, which were perceived to be a flight-to-quality stock at the beginning of 2015, began to lose strength in the second half of last year. The Mercury News Silicon Valley 150 Index dipped by 15 percent between last June and this January. Uncertainty over global growth, dominated by the weakening of the Chinese market, led to lower expected demand for technology goods and services.
The outlook for the technology industry and for the overall San Francisco MSA labor market is still positive in 2016. Area employment has benefitted from a diverse labor force, adding 65,400 jobs to the economy last year. Employment growth in the professional and business services and construction sectors remained strong in 2015. We expect area employment growth to continue moderating this year. Headwinds become more prevalent the later you move into the cycle. A stabilizing Chinese economy would bring upside potential to our San Francisco MSA labor forecast. Conversely, further declines in international conditions and a slower U.S. economy would be a drag on area employment expectations.
There is still upside potential for San Francisco MSA residential real estate markets. Area housing starts showed some improvement, jumping 26.7 percent to 11,697 units in 2015. However, looking at the housing starts to household formation ratio, San Francisco still needs an additional 25,000 units per year just to keep up with household formation. Recent demographic shifts to more affordable areas such as Oakland will support area construction growth in 2016.
Click here for the complete San Francisco MSA Economic Update: San Francisco 2016Q1.