San Jose MSA Tech Sector Faces Macro Hurdles

San Jose technology firms face potential slowing international demand and concerns over squeezed corporate profits. Technology stocks took a wallop heading into the start of 2016. The Mercury News Silicon Valley 150 Index dipped by 15 percent between last June and this January. A slowdown in the Chinese economy has left analysts lowering expected international demand growth for U.S. technology. The strengthening of the U.S. dollar against major trade currencies has also been a headwind for some technology companies. A stronger U.S. dollar makes our exported goods and services more expensive. Additionally, unfavorable exchange rates hit corporate profit margins when repatriating revenues to the U.S.

We remain cautiously optimistic regarding the technology industry and employment in the San Jose MSA in 2016 due to the above headwinds. Area labor markets saw their strongest growth since 2000 as employment growth was up by 5.4 percent last year. We expect the San Jose MSA employment growth to continue to outpace California, but we see moderating growth in area labor markets this year. The upside risks to our 2016 labor forecasts are a stabilizing Chinese economy and a growing Indian economy. The downside risks to our labor forecasts are an economic slowdown in the U.S. and weaker international conditions.

The California bullet train is heading to San Jose. The new plan will connect Southern California and the Bay Area via Bakersfield and Diridon Station located in downtown San Jose. The original plan to build the first segment of the rail line between Burbank and the Central Valley was met with some opposition and faced high costs for tunneling through the Tehachapi and San Gabriel mountains. The shift towards the Silicon Valley is expected to reduce cost, increase ridership in the bay area and appeal more to private investors.

san jose 2016q1

Click here for the complete San Jose MSA Regional Economic Update: San Jose 2016Q1.

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