San Francisco Chronicle - (Sunday)
As GDP declines, Bay Area fears recession
Two straight quarters of falling gross domestic product are raising recession fears, but economists say it’s too early to conclude that the U.S. economy is in a recession. A strong local labor market and economic power of the tech sector will also help shield the Bay Area from a prolonged downturn, experts said.
The GDP fell 0.9% in the second quarter from the prior year, following a 1.6% decline in the first quarter. A key contributor to the decline was slower inventory accumulation, such as retailers ordering fewer products to replenish stockpiles, which contributed to 2 percentage points of the decline. The economy’s contraction was far milder than the 2020 recession, when GDP plunged 31.2% in the second quarter of 2020 before rebounding with 33.8% growth the following quarter.
“I do think the next few months will be slow from inflation and supply chain issues and the war in Ukraine,” said Stephen Levy, director of the Center for Continuing Study of the California Economy in Palo Alto.
But “two tiny drops in GDP and one month of slowing home prices” are “not traditional signs of recession,” Levy said. “I don’t see any lasting dangers.”
Big tech companies are slowing hiring and reporting weaker earnings. Facebook parent Meta reported its first ever quarterly revenue drop on Wednesday and plans to cut costs. The company expects to spend $85 billion to $88 billion this year, down from an earlier projection of $87 billion to $92 billion, in part because of less hiring.
“We seem to have entered an economic downturn that
California’s unemployment rate fell to 4.2% in June, and the state added 19,900 jobs. The state has recovered 93.6% of the nonfarm jobs lost during the first two months of the pandemic.
Top officials, including Federal Reserve Chair Jerome Powell, say they do not think the economy is in a recession.
will have a broad impact on the digital advertising business,” CEO Mark Zuckerberg said Wednesday on the company’s earnings call. “It’s always
hard to predict how deep or how long these cycles will be. But I’d say that the situation seems worse than it did a quarter ago.”
Apple, Google, Salesforce and Microsoft are also slowing hiring. But big tech companies are still moving forward with major office expansions, such as Meta’s Willow Village project in Menlo Park and Google’s massive San Jose project near Diridon Station. Just this week, Google also bought an office building in Chicago for $105 million.
The nonprofit National Bureau of Economic Research is the official arbiter of when recessions begin and end, but typically doesn’t confirm recessions until months later. In addition to GDP growth, the labor market and consumer spending are taken into account.
Top government officials including President Biden, Treasury Secretary Janet Yellen and Federal Reserve Chair Jerome Powell all said this week that they don’t think the economy is in a recession.
“I do not think the U.S. is currently in a recession, and the reason is there are too many areas of the economy that are performing too well,” Powell said on Wednesday at a press conference. “This is a very strong labor market.”
The country added 372,000 jobs in June and the unemployment rate was 3.6%. California’s unemployment rate fell to 4.2% in June, the 12th straight month of declines, and the state added 19,900 jobs. The state has recovered 93.6% of the nearly 2.76 million non-farm jobs lost during the first two months of the pandemic.
San Francisco’s unemployment rate rose slightly to 2.2% in June from a record low 1.9% in the previous month. The information job sector, which includes tech, added 2,600 jobs in San Francisco and San Mateo counties, despite local tech firms like Lyft, Tesla and Niantic conducting layoffs.
Asim Khan, a senior economist in the San Francisco Controller’s Office, said the Federal Reserve’s plan of raising interest rates to combat inflation could lead to a “relatively mild recession,” but it was too soon to confirm one.
Local and national housing prices also fell in June, San Francisco’s office market continued to struggle in the second quarter, and more than a fifth of the market remains vacant.
“We still don’t have a clear indication of (a) local recession yet, given the labor market’s strength, but we are keeping a close eye on various indicators to gauge it,” Khan said.