Mid-year economic forecast

Left to right: Moderator Scott Thurm, Michael J. Boskin, John Silvia, and Ann Winblad talk economic futures photo: L. Herrada-Rios

In late July, The Commonwealth Club hosted a mid-year economic review. Here the panelists discuss whether they think the current slow-growth will persist in the short-term.

Michael J. Boskin, Ph.D., senior fellow, Hoover Institution, professor of economics, Stanford University; former chair, Council of Economic Advisers under President George H.W. Bush: I’m optimistic that we’ll continue a slow recovery. What we’ve gone through in California, which has picked up a bit in the last year, has been getting out of an exceptionally deep hole. So we’re improving.

The state is very diverse; the Bay Area in particular is doing well, and in particular the Central Valley and Inland Empire still are in very difficult shape, with double-digit unemployment and a lot of difficulty. I’ll also remind everyone that the official unemployment rate has become increasingly disassociated from a comprehensive measure of how the labor market is doing, because so many people are working part-time and would like to be working full-time, or have given up looking for work. So a broader measure of unemployment would be considerably larger. That said, we are improving, and the base case outlook is for continued improvement.

The national economy, which is our largest trading partner in California and the most important thing for how well California does, and the rest of America does — as well as the rest of the world, because we are a trading nation, not just our goods and services, but the shipment of goods and services through our ports, the transportation, etc. — is also recovering, but at a slower rate. [Several quarters of slow growth] suggests that we don’t really have a strong enough recovery to rapidly expand employment and reduce unemployment. The labor market’s improving slowly, a little bit more than that in California.

But to give you an idea where we are in GDP terms from the depths of the recession, we’ve had a 40 percent recovery relative to the pace of recovery in some other postwar recessions. In the labor market, about 30 percent as rapid growth in jobs. So we’ve still got a long way to go.

John Silvia, Ph.D., managing director and chief economist, Wells Fargo: At least from my perspective, there is no California economy. California reminds me of the old stories of the Greek city states. You have very, very diverse economic bases for the different metropolitan areas.

Let me just throw out one quick statistic. San Jose and San Francisco, the two metropolitan areas that have recaptured their peak in employment since 2008 — that’s not true of any other metropolitan area in the state. When you look at the different metropolitan areas, you start to realize that their economic base is very, very different, and what particularly this area has to say in terms of its economic future is that it is very much technology, biotech, a lot of education, a lot of sophisticated people, very global, very Asian in its orientation. It gives you a very different character. So to me there is no California economy; there is an economy made up of 20, 25 different metropolitan areas, each with their own economic challenges and characteristics, and a great diversity in performance among the different areas.

The labor market in the United States but also in California today is very different than what we’re used to from the 1970s, 1980s 1990s. It’s interesting that part-time workers compose a greater percentage of the U.S. labor force than we’ve seen in the past from economic recoveries. There are also little mysteries: Labor force participation for both men and women has gone down in the last five years — many of us realized labor force participation for young people has really dropped off dramatically in the last five or six years; what some of us don’t appreciate is the labor force participation rate for prime-age females — 25 to 34 — has actually declined as well. If you think about what we saw in terms of women’s labor force participation throughout the ’70s, ’80s, and ’90s is that number kept on rising. Now all of a sudden it’s declining.

Ann Winblad, co-founder and managing director, Hummer Winblad Venture Partners: Last year about $25 billion was invested in the United States by the venture capital industry, but what most people don’t pay attention to is that 50 percent of those dollars never left the state of California, and most of those dollars stay here [in the Bay Area], with some in the Los Angeles and San Diego areas. That also means that about 41 percent percent of the companies were California companies. That is good news for California, not necessarily good news for the middle of the country. We also had a steady IPO market. [As of late July], we have had about 40-plus IPOs this year, and … they are probably many more companies in registration that are formally filed that are silently out testing the market for potential IPO. Many of those companies are right here in the Bay Area.

We also do have one big challenge, and that is talent. People come to the Bay Area because we have concentration of tech talent. But it still is a challenge here. In the United States alone, one in five new jobs required very strong science, technology, engineering, or math skills, and that number is only increasing. The number of tech jobs that were created this year relative to last year in the same timeframe, increased by 6 percent. So we have an increasing issue of skills shortage in the U.S.

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