West Bears Brunt of Tech Bust
The 1990s technology boom boosted the Western U.S. economy disproportionately, but a high-tech bust is inflicting more pain on the region than on the rest of the country, a Federal Reserve Bank of San Francisco paper published Monday said.
The paper, written by Mary Daly, senior economist at the regional Fed bank, said the downturn in the high-technology sector this year has put employment growth in the Western U.S. in line with the rest of the country for the first time since the last U.S. recession in 1990-91.
The San Francisco Fed office monitors economic activity in the Fed system’s 12th District, which encompasses nine Western states, including California, home to the technology-rich Silicon Valley.
Job growth in the district had outpaced the rest of the country over the last decade because of the area’s heavy concentration of high-tech firms. Business investment in information technology grew by an average of 20% per year from 1995 to 1999.
But that boom turned to bust this year, and Daly said the job cuts in tech firms have been spilling over to other sectors.
Softening markets for new office and industrial space have slowed growth in construction employment and shipping, and trucking and warehousing services also have suffered.
“The prominence of the IT sector, combined with the deep and broad downturn it has experienced, have significantly damped district employment growth, turning the climate from good to bad in just a few months,” Daly wrote in the paper, titled “Information Technology and Growth in the Twelfth District.”
Daly said employment in the Western region rose 3.5% last year but was falling at a 0.5% annual pace in May-September of this year.
Economic activity in the region is 1.5 times as dependent on technology as the rest of the country. Jobs in IT manufacturing and services last year accounted for 6% of total employment in the West, compared with 4% in the rest of the country.
The difference is more dramatic when measuring the share of wages, benefits and salaries coming from high-tech jobs and when looking at high-tech centers such as the San Francisco Bay Area, where Silicon Valley is located.
Daly said in past downturns, slumps in IT manufacturing were partially offset by rapid growth in non-manufacturing tech firms, but this time around there is a simultaneous decline in the manufacturing and service sides of the economy.
“Although production-related adjustments in the IT sector occur periodically, the depth and breadth of the current downturn have proven to be larger than expected and greater than in past cycles,” she wrote.
“The technology-driven downturn has dramatically altered the regional pattern of growth in the District this year, with last year’s fastest growth areas either contracting or moving laterally.”
