Silicon Valley Reaches "Upper Bounds Of Hype & Craziness" - Job Growth Worst Since Lehman

Authored by Wolf Richter via,

Commercial and residential real estate bubbles choke the economy. The upper bounds of hype and craziness have been reached.

The San Francisco Bay Area has seen an astounding jobs boom since the Great Recession. The tsunami of global liquidity that washed over it after the Great Recession, central-bank QE and zero-interest-rate policies that sent investors chasing blindly after risk, a blistering no-holds-barred startup bubble with the craziest valuations, one of the greatest stock market bubbles ever – whatever caused the boom, it created one of the craziest housing bubbles ever, a restaurant scene to dream of, traffic jams to have nightmares over, and hundreds of thousands of jobs. But it’s over.

In May, employment in San Francisco dropped to 542,600 jobs, the lowest since June 2016, according to the data released on Friday by the California Employment Development Department. The employment peak was in December 2016 at 547,200.

The labor force in the City fell to 557,600. That’s below March 2016! This confirms a slew of other data and anecdotal evidence: People and businesses are leaving. It’s too expensive. They’re voting with their feet.

The blue line in the chart below shows the decline in the labor force (the number of people who live in San Francisco and are deemed to be in the labor force). The red line shows employment (the number of people working in the City regardless of where they live, including the many who commute from other areas):

The year-over-year increase in May of 4,900 jobs in San Francisco was the lowest year-over-year increase since the plunge during the Great Recession.

Between December 2009 (the low point during the Great Recession) and December 2016 (the high point since then), the City created 131,400 jobs. An increase of 31.6% in seven years! The city created on average 18,800 jobs per year over the period, a breath-taking employment boom for a city of 850,000 people. And San Francisco accounts for only 11% of the Bay Area population of 7.68 million.

This chart shows the year-over-year employment gains (blue) and losses (red) since January 2009. Note the trend from the job creation peak in the fall of 2014:

Across the Bay, in Alameda County, whose population is about twice the size of San Francisco’s, and which includes Oakland, Berkeley, and other cities, a similar scenario is playing out.

Employment fell to 804,100 in May, down 6,800 jobs from the peak in December 2016, and below July 2016. The labor force fell to 832,000, down 13,000 from the peak in October 2016, and below February 2016. People are leaving:

The county created 134,000 jobs between the end of 2009 and the employment peak in December 2016. That’s an increase of 19% over seven years, or on average 19,000 jobs per year. But in May, the year-over-year increase was only 4,500, the lowest since January 2011 and December 2010, and before then since 2009.

This charts shows the year-over-year changes in employment, the boom and how the trend over the past year has been deteriorating and is now heading into the lean times:

Don’t get me wrong. The Bay Area isn’t “collapsing” at this point. When you walk around in certain parts of San Francisco, you see tourists in astounding numbers. It’s still tough to get into popular restaurants though the other Saturday we were able to get a reservation for 8:30 PM, peak dinner time, by calling two hours ahead. Before then, we couldn’t duplicate that by calling two days ahead. But it might have been a fluke. By 9 PM, the place was full. Traffic is still a nightmare seven days a week. Home prices in San Francisco, after flat-lining for two years, suddenly spiked in May to another crazy record. Commercial real estate is hanging on by its teeth to sky-high prices, though apartment rents have dropped from their peak.

But there are a surprising number of shuttered retail shops and restaurants, including some favorites. Landlords have become too greedy, and when they jack up rents at lease renewal time, the equation no longer works for the business. This doesn’t mean business is bad. It means commercial rents are too high. This has been duplicated in the office sector. There is still demand, but a number of companies, including Charles Schwab, are sending jobs to cheaper states.

And when the work force is hightailing it though there are still plenty of jobs, it means that housing costs are too high. This is a universal complaint in the Bay Area. Nearly half the millennials said they’re “likely” to leave.

This is how commercial and residential real estate bubbles with their uneconomical prices choke the economy.

On top of the cost factors, there is the startup boom that is now grappling with a new sense of reality. A number of startups, such as NerdWallet, and more mature companies, such as Twitter, have laid off people. Others have stopped hiring. A slew of them shut down. Some companies are still getting funded, but the frenzy has been dialed down. And Uber, a San Francisco darling that is moving its headquarters to Oakland, is in a world of hurt.

But this time, there is no financial crisis, which set off the last bust. And this time, the Nasdaq isn’t collapsing, which triggered the bust starting in 2000. The Nasdaq is hovering near all-time highs. Excess liquidity is still sloshing through the system. Financial stress is at historic lows. And the Fed’s policies, despite the upticks in its target rate, are still highly accommodative. The whole system is set on “go,” but in the Bay Area, it has reached the upper bounds of bubble hype and craziness and can’t go anymore.

And so the big employment boom of San Francisco and surrounding Bay Area counties is over and tech skills are suddenly “abundant.” Read…  It Starts: Hiring Falls in San Francisco Bay Area, Says LinkedIn


KimAsa Sun, 06/18/2017 - 17:30 Permalink

Don’t get me wrong. The Bay Area isn’t “collapsing” at this point.

Dang nabbit. Now my day is ruined. Can we at least have little cave-in? How about a "matter", can we have one of those?

Icewater Enema Sun, 06/18/2017 - 17:39 Permalink

Half of millenials are considering leaving...Sure, millenial coders work at one of the FANGs or some other hot dotcom to polish their resume. Then they try to leverage that and the high salary in some other place where they can actually afford to live. Because despite all that social justice BS they want more money and more stuff just like everybody else.

pitz Icewater Enema Sun, 06/18/2017 - 17:47 Permalink

Not many American millennial coders at the FANGs.  Mostly just foreign nationals. Its absolutely bizarre how dead the nightlife is in the Valley.  You'd think, if the narrative that the SV tech companies cast was actually true, that there'd be all sorts of entertainment, or even all night places to eat, but try getting a burger after your plane is delayed getting into SJC after 10pm.  Good freakin luck.  I've seen more nightlife in the retirement communities of the west coast of Florida than exists in the Silicon Valley. 

In reply to by Icewater Enema

ElTerco Sun, 06/18/2017 - 19:01 Permalink

This doesn't necessarily mean people are leaving. Maybe more people are just dropping out of the labor force? While SF is expensive, it is also where many of the wealthiest people in the country live. Many people can retire or stop working and stay put with no consequences.

That would explain why employment is actually growing faster than labor force in both of your curves (aka the gap is closing), even if there is a slight downturn in both numbers at the moment. Am I missing something?

ElTerco ElTerco Tue, 06/20/2017 - 02:18 Permalink

I got five down votes and no up votes for the above comment. I just pulled the census data and saw that San Francisco county population is growing at a 0.65% rate and Alameda county population is growing at a 0.4% rate. I thought the ZH audience would appreciate being able to look at a graph and cut through the bullshit. I still don't get the down votes.

In reply to by ElTerco

itstippy Sun, 06/18/2017 - 18:19 Permalink

Back in the day (50 years ago) San Francisco was THE destination for every stoner, flower child, homosexual, genius, aspiring artist, reprobate, bongo drummer, and harmless dreamer Wisconsin produced.  Otis Redding's The Dock Of The Bay was their siren call.  My, how times change.  

nightshiftsucks Sun, 06/18/2017 - 18:52 Permalink

I'm a line maint. tech,I work in SV and our facility is being shutdown in a couple of months.I thought I would be screwed but other companies are calling  trying to find techs and a couple are desperate which really suprised me.

decentraliseds… (not verified) Sun, 06/18/2017 - 23:24 Permalink

 Why waste time on this alligator when the swamp’s most critical economic and political problems revolve around the hegemony of a global corporate cartel, which is headquartered in the US because this is where their dominant military force resides. The US Constitution is therefore the “kingpin” of an all-inclusive global financial empire. These fictitious entities now own the USA and command its military infrastructure by virtue of the Federal Reserve Corporation, regulatory capture, MSM propaganda, and congressional lobbying. The Founders had to fight a bloody Revolutionary War to win our right to incorporate as a nation – the USA. But then, for whatever reason, our Founders granted the greediest businessmen among them unrestricted corporate charters with enough potential capital & power to compete with the individual states, smaller sovereign nations, and eventually to buy out the USA itself. The only way The People can regain our sovereignty as a constitutional republic now is to severely curtail the privileges of any corporation doing business here. To remain sovereign we have to stop granting corporate charters to just any “suit” that comes along without fulfilling a defined social value in return. The "Divine Right Of Kings” should not apply to fictitious entities just because they are “Too Big To Fail”. We can't afford to privatize our Treasury to transnational banks anymore. Government must be held responsible only to the electorate, not fictitious entities; and banks must be held responsible to the government if we are ever to restore sanity, much less prosperity, to the world. It was a loophole in our Constitution that allowed corporate charters to be so easily obtained that a swamp of corruption inevitably flooded our entire economic system. It is a swamp that can't be drained at this point because the Constitution doesn’t provide a drain. This 28th amendment is intended to install that drain so Congress can pull the plug ASAP. As a matter of political practicality we must rely on the Article 5 option to do this, for which the electorate will need overwhelming consensus beforehand. Seriously; an Article 5 Constitutional Convention is rapidly becoming our only sensible option. This is what I think it will take to save the world; and nobody gets hurt: 28th Amendment: Corporations are not persons in any sense of the word and shall be granted only those rights and privileges that Congress deems necessary for the well-being of the People. Congress shall provide legislation defining the terms and conditions of corporate charters according to their purpose; which shall include, but are not limited to: 1, prohibitions against any corporation; a, owning another corporation; b, becoming economically indispensable or monopolistic; or c, otherwise distorting the general economy; 2, prohibitions against any form of interference in the affairs of; a, government, b, education, c, news media; or d, healthcare, and 3, provisions for; a, the auditing of standardized, current, and transparent account books; b, the establishment of state and municipal banking; and c, civil and criminal penalties to be suffered by corporate executives for violation of the terms of a corporate charter.