San Jose MSA Driving the Latest Generation of Technology

Current California economic activity measures are showing signs of a two-handed economy. On the one hand, overall job growth in non-manufacturing sectors continues to be a fundamental positive for the state’s economy. However, the state’s manufacturing sector is feeling the impact of the appreciation of the U.S. dollar compared to major trading partners and is contracting. Also, California’s technology sector has faced stagnant stock prices and squeezed corporate profits. We expect the California economy to continue to grow at a moderate pace this year, supported by firmer residential construction activity and a more positive outlook for the technology sector as we progress through 2016.

Major technology firms are partnering with major auto manufacturers to develop the 21st century automobile. What was once a hopeful dream of a sci-fi novel, the autonomous vehicle is now becoming a reality. Google announced that it will partner with Fiat Chrysler to develop an autonomous minivan. General Motors acquired the autonomous vehicle technology developer firm Cruise Automation earlier this year. Automated ride-sharing vehicles appear to be in the works as well. Additional industrial space throughout the region will be needed for developing these efforts. Tesla recently leased over one million square feet of space in Livermore as it prepare for increased production.

San Jose MSA job growth moderated in 2016Q1. Area nonfarm jobs were up only 1.6 percent from 2015Q4. The slowdown occurred as financial market volatility increased in the technology sector at the start of the year. The Mercury News Silicon Valley 150 index year-over-year growth declined for the first four months of 2016. To weed out some of the short term movements, we look at year-over-year job growth which remained at a strong 3.7 percent in 2016Q1. The San Jose MSA unemployment rate was down to 3.7 percent in March. As the unemployment rate continues to decline, there will either be stronger inward migration into the metro area or slower job growth as the pool of potential employees shrinks. We expect the latter.

Declining sentiment of Bay Area residents demonstrates the difficulty with drawing stronger migration into the region. According to a recent survey conducted by the Bay Area Council, 34 percent of those polled are planning to leave the region. High housing costs, traffic and overall high costs of living were cited for the discontent. High housing costs have cities searching for potential solutions. The San Jose city council recently capped annual rent increases at 5 percent for 44,000 rent controlled apartments built before 1979.

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Click here for the complete San Jose MSA Regional Economic Update: San Jose 2016Q2.

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