Local News: Silicon Valley recovery on track in 2011, economists say

Silicon Valley will see some improvement next year -- more consumer spending, higher tech sales, some cautious hiring -- as it continues to rebound from the ravages of the Great Recession.

But it still faces a rocky road to full recovery, which some economists think will take several years, although their consensus view was that the region would avoid a dip back into recession.

In a survey by the Mercury News, a range of economists and Silicon Valley business executives offered their thoughts for 2011. Among their predictions:

Housing prices will stabilize or at least not get much worse, and commercial deals will pick up a bit;

Consumer spending should improve, which is good news for small businesses;

Jobs in tech and health will continue to post gains, while the public sector bleeds;

Pay will rise, especially in tech, where competition is heating up for certain types of technical talent.

Craig Daley, president of Daley's Drywall & Taping in Campbell, said he expects business to improve in 2011 and plans to hire 40 to 50 people during the year.

But 2010 was the worst in the company's 47-year history, he said. "We were able to remain profitable by making some difficult cuts in employees and technical upgrades and now run very efficiently," Daley said.
There are other signs of life in the construction business. Jeffrey Michaels, director of the Business Forecasting Center at the University of the Pacific, said the valley is leading the state in building permits, which is a good sign for the real estate industry. "Overall, I'm cautiously optimistic," Michaels said.


At the other end of the economic spectrum from Daley, Silicon Valley's big tech firms have rebounded smartly from the downturn and are optimistic about next year. Many are also planning to hire.  "We're starting to set export records again," said Stephen Levy of the Center for Continuing Study of the California Economy. "It's not just the venture capital side, it's the world economy. We sell capital goods embedded with technology to the world, and we're doing that again."

Skype, the online chat software company, is moving into Palo Alto offices with room for 500 employees. Now at 110, it expects to hire about 280 locally next year. The valley has "people we like to hire," spokeswoman Jennifer Caukin said.

And one of the valley's chief economic engines, Intel, is forecasting solid worldwide demand for its products.
Kim Walesh, strategist for San Jose's economic development office, reports a growing number of calls from businesses seeking to relocate or consolidate in the city. Mid-sized companies and startups should drive economic growth next year, she said.

But the gains in tech will be balanced by cuts in public sector spending and employment, possibly leaving overall economic growth flat or near that for the year. The public sector is a key part of the local economy.
Government in the valley has shed 4,200 jobs, or 4 percent, in the 12 months through November. And Russell Hancock, president and CEO of Joint Venture: Silicon Valley, fears that's just the beginning.

The public sector is "in worse shape than many of us even imagine," he said. The reason is that the economic crash has taken this long to catch up with government.

Santa Clara County Budget Director Leslie Crowell said the county is closely watching incoming revenue and worrying about the impact of the end of the federal stimulus, which will begin winding down in January. "We're not seeing any measurable uptick in revenues," she said. "You hear Christmas is turning out to be stronger than everybody thought it would be. Does that start something or is it just a blip?"

Housing is a key to recovery, because as it bounces back, the homeowning consumer emerges from his or her shell and starts buying things again.

Zillow's home index reports a 1.3 percent year-over-year increase in Santa Clara County's median home price to $575,900. Though there's been a recent spike in foreclosures, they're still down from last year, partly due to banks stopping foreclosures while a document-signing mess is corrected.

"Over the past year, housing prices in many parts of California, including Silicon Valley, appear to have stabilized," said Jed Kolko, economist with the Public Policy Institute of California. Residential vacancies, despite foreclosures, also have remained low, he said.

"There are so many industries dependent on housing demand," Kolko noted. "The stabilization of housing prices in Silicon Valley is good news for the area economy in general."

The valley's future growth in personal income looks secure to various economists. Beacon Economics is forecasting 2011 growth in personal income in the South Bay of about 4.7 percent, while the University of the Pacific's Business Forecasting Center sees a 4.2 percent increase in personal income, adjusted for inflation.

Courtesy of  San Jose Mercury News