Bay Area Rattled by the Economy : Recession: Even prosperous regions are being shaken up, giving evidence of how deep and pervasive the nation’s economic woes have become.
Mitch Lowe figures that the recession finally came to this woodsy, affluent Marin County town about February--months after it hit most other parts of the country. That was when customers’ checks at his video rental store began bouncing at a record pace.
Across town, shoppers at the upscale Mill Valley Market have been switching from prime rib to hamburger. Meanwhile, with Marinites shying away from real estate and shopping malls, property and sales tax revenues are sliding, and Mill Valley finds itself girding for municipal budget cuts.
“We have watched everybody else drop like flies,” City Council member Kathleen Foote said. “Now we’re starting to see it.”
Compared to the economic woes besetting Boston, New York and even Los Angeles, Mill Valley’s troubles might seem like small potatoes. But the fact that even prosperous pockets of the Bay Area are feeling pinched is evidence of how deep and pervasive the nation’s recession has become.
Overall, the highly diversified Bay Area has weathered the recession better than most other parts of the country, particularly Southern California, with its massive defense and aerospace layoffs and severe real estate slump. Most of the nine-county Bay Area has actually enjoyed some job growth, as well as unemployment rates well below those of the nation and California as a whole.
Nevertheless, economists and executives say, the recession that until recently had been confined in the Bay Area primarily to Silicon Valley has now spread throughout the region.
Ominous signs abound: Silicon Valley companies continue to lay off hundreds of workers, San Francisco faces growing threats to its prosperity, and, for the first time in nearly a decade, the East Bay--long the region’s primary growth engine--suffered a loss of jobs in September compared to a year ago.
“We’re in a boat . . . and a lot of water has seeped in,” said Raymond J. Brady, research director for the Assn. of Bay Area Governments, a regional planning agency in Oakland. “Although Los Angeles is farther down in the hold, we’re still on the same sinking ship.”
By far the worst-hit pocket is Santa Clara County, the state’s high-tech breeding ground. Stung by a slump in computer and defense-related sales, Silicon Valley companies are issuing pink slips by the hundreds and making plans to move or build facilities outside California to escape its crowded freeways and high land, labor and housing costs.
“There is a consensus in the business community that in many areas we are no longer competitive,” said Gary Burke, president of the Santa Clara County Manufacturing Group. “In the past, we had it so good for so long we didn’t need to address (those problems).”
The Silicon Valley has lost about 12,000 manufacturing jobs this year, Burke said, adding that out-of-state expansions announced by Apple Computer and Intel, among others, account for perhaps an additional 10,000 jobs lost to the region.
San Francisco, the Bay Area’s symbolic center, has had years of practice watching employers forsake the city for lower-cost areas, primarily the East Bay. But a recent flurry of national media attention focused attention on the city’s malaise.
First, Forbes magazine blasted San Francisco for its “wacky economics” and “self-destructive” liberal politics. Then the city placed second to last in a Fortune magazine survey on pro-business attitudes in the nation’s 50 largest cities. Almost simultaneously, it was ranked first on Conde Nast Traveler’s roster of favorite cities to visit in the world.
That confluence of opinions pretty much sums up the situation in The City, as residents are fond of calling it.
San Francisco might be a great place to visit--despite its aggressive panhandlers and post-earthquake freeway snarls--but it is scarcely a logical place to set up shop. Executives consider it to be downright anti-business--laden with steep taxes, onerous building regulations, costly office space and a city-county Board of Supervisors viewed as overly deferential to special-interest groups and far too interested in global affairs.
“The Board of Supervisors is one of the great liabilities of the Bay Area,” said Warren Hellman, a lifelong San Franciscan who is a partner in the investment banking firm of Hellman & Friedman.
Liberal Mayor Art Agnos, on the other hand, has managed to win over some members of the business community with his high-energy promotion of the city’s tourism and Pacific Rim trade capabilities. Polls show Agnos neck-and-neck with Frank Jordan, his opponent in the Dec. 10 runoff election. Jordan, a conservative former police chief, is viewed as more of an ally of business.
Even if the business community has gotten more comfortable with Agnos as his four-year term winds down, the city’s historically inhospitable attitude toward business has prompted many big companies to look elsewhere to expand.
Charles Schwab & Co., a fast-growing discount brokerage firm with headquarters in San Francisco, next month will transfer its after-hours telephone trading services to suburban Indianapolis.
The Indiana capital was enthusiastic and generous. “They give you money, enough to get your attention, and they help in the opening of your facility,” said Hugo W. Quackenbush, a Schwab senior vice president. “And the employees love it because they can afford houses.”
Faced with such attitudes, executives say, San Francisco is belatedly getting savvier about the importance of jobs and economic growth.
The San Francisco Chamber of Commerce recently organized a volunteer task force aimed at retaining and luring companies. So far, the effort has consisted mostly of pep talks to companies rumored to be leaving. Task force members play up the city’s strengths--abundant financial services, law firms, highly skilled work force--and ask what city officials might do to induce businesses to stick around.
Ironically, San Francisco’s slow-growth tack of the 1980s--which put Draconian limits on office building, to the dismay of the business community--appears to be coming back to benefit the city in the recession. The market has plenty of surplus office space but nothing like the glut that exists in Los Angeles.
One wild card is what effect Bank of America’s merger with Los Angeles-based Security Pacific National Bank will have on jobs and office space in the Bay Area. The merger is expected to result in thousands of layoffs, but the combined banking company’s headquarters will remain in San Francisco--a boost to the ego after years of watching Los Angeles pass it by.
In the East Bay, the recession has cooled a previously torrid rate of growth that resulted in large part from corporate relocations out of San Francisco. Alameda and Contra Costa counties, which accounted for 39% of all new job growth in the Bay Area in the 1980s, showed a net loss of 1,800 jobs in September compared to the same month in 1990. Furthermore, commercial leasing agents expect a slow 1992.
Frederick Cannon, BankAmerica’s senior economist, says much of the East Bay’s long-term strength will hinge on a few key issues. First will be the dredging of San Francisco Bay, which has been held up by environmental concerns. Unless the Port of Oakland is allowed to do the dredging necessary to accommodate new-generation container ships, Cannon said, it won’t be able to compete with other West Coast ports for Pacific Rim trade.
Cannon also noted that the region’s chronic housing crisis and freeway congestion could be eased in two ways: following through with planned extensions of the Bay Area Rapid Transit System and filling in less populated pockets of the region with high-density, affordable housing.
Meanwhile, big questions remain about how quickly and strongly Oakland and Berkeley will recover from last month’s deadly fire. Economists frankly expect a shot in the arm as the rebuilding of thousands of housing units provides jobs for construction workers and architects.
That’s about as optimistic as many Bay Area economists are getting, however. More so perhaps than in many previous downturns, when the Bay Area outperformed many other regions, there is a sense that as the nation goes, so goes the Bay Area.
“If we had pulled out in July and had a robust third quarter, people would have forgotten this recession,” said Robert K. Arnold, senior economist with the Center for Continuing Study of the California Economy in Palo Alto.
“You can’t escape it, folks. Until the country turns around, we won’t.”
Unemployment Edges Up In September, the most recent month for which numbers are available, the Bay Area registered marked increases in jobless rates. However, the rates are still well below those of Los Angeles County (9.3%), California as a whole (7.7%) and the nation (6.7%). (Only California and U.S. numbers are seasonally adjusted.)
Sept. ’90 Sept. ’91 San Francisco Area (includes Marin, San Francisco ans San Mateo counties) 3.6% 4.5% Oakland Area (Oakland, and Alameda counties) 4.5% 5.4% San Jose Area (Santa Clara County) 4.4% 5.5% Santa Rosa-Petaluma Area (Sonoma County) 4.3% 5.3% Vallejo-Fairfield-Napa Area (Napa and Solano counties) 5.4% 6.3%
Source: California Employment Development Department
Empty Offices
Third-quarter figures show that the supply of and demand for office space in the San Francisco Bay Area have been out of kilter, as in many other sections of the country. Overall, the Bay Area is doing better than downtown Los Angeles (with a 23.2% vacancy rate) and Orange County (22.8%).
Area Total space Overall Average Annual (millions of sq. ft.) Vacancy Rate Cost (per sq. ft.) San Francisco 57.5 14.6% $21.58 San Mateo County 17.1 17.1% $19.68 Silicon Valley 27.9 15.0% $19.08 Oakland Area 22.3 17.4% $17.88 Contra Costa County 22.2 17.4% $16.92
Source: Cushman & Wakefield
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