San Francisco

Welcome to The Regional Outlook, a forecast for five of the state’s largest metropolitan economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.

The economic outlook for the County of San Francisco has continued to improve, although the recovery has been much slower compared to neighboring regions. Total nonfarm employment increased 6.4% in the twelve-month period ending in August 2022, faster than the 4% statewide increase, but there is more room for growth in San Francisco compared to the state as a whole. Employment growth has continued to moderate as the region comes closer to regaining jobs lost to the pandemic. That said, San Francisco is running out of available labor. Since the beginning of the year, nonfarm employment has increased by 3.1%, compared to 5.9% during the same period a year earlier.

The pool of available labor is also dwindling. For three consecutive months this year, the unemployment rate held steady at 1.7%, which, as some unemployment is normal, is effectively zero. Currently, the unemployment rate is 2%, which is abnormally low from a historic standpoint. However, it’s entirely possible that county employers can increase payrolls by adding positions that do not require workers to be physically present, drawing on labor pools outside of the San Francisco area.

At the time of writing, nonfarm employment in the San Francisco MD (San Francisco and San Mateo counties) is still 2.1% below its pre-pandemic peak. While it’s impossible to tell how the region would’ve fared had there not been a pandemic, we can get an idea by applying a trend to the historical data. According to this, it’s estimated that the economy would’ve had at least 60,000 to 74,000 more jobs by this point.

As far as consumption goes, taxable sales have rebounded substantially over trend. However, there was a pronounced drop-off in spending due to lockdowns and various public health mandates. The same exercise can be repeated to project the trend from 2020 onward and compare the cumulative sum of taxable sales over the six-quarter period ending in the second quarter of 2022 (the latest data available). Beacon Economics estimates that, cumulatively, taxable sales are nearly 14% lower than they would have been if the pandemic had not occurred.

Given the latest figures, Beacon Economics expects San Francisco’s employment recovery to continue into next year, although the extent to which nonfarm employment can grow will be limited by an increasingly short supply of available labor. Beacon Economics also projects a moderate rise in the unemployment rate toward the end of the year as measures taken by the Federal Reserve begin to cool things down. A recession is not currently predicted, but storm clouds are beginning to appear on the horizon. As noted in Beacon Economics’ national outlook, somewhere out there is a reckoning, but exactly when is unclear.

Although the housing market has continued to show signs of weakness, there is a big difference between a housing pause and a housing bust. Currently, Beacon Economics does not have a housing correction in its current forecast. Weakness in the housing market stems from a slowdown in sales activity. The primary driver of the slowdown was (and has been) rising interest rates. Even after accounting for local inflation, the real cost

of owning a home in San Francisco[1] has risen 23.1% since the start of this year. Meanwhile, inflation-adjusted average hourly earnings for private-sector employees have declined 5.4%.

The impact of rising rates is readily apparent in sales activity. Home sales in the county were down significantly across major segments of the market. Sales of existing single-family homes, which comprise a significant share of the local market, were down 11.4% through the first half of this year, but prices increased 10.8% over the same period. Steep declines in sales also occurred in the existing condos market, where year-to-date sales dipped 20.2%, while sales of new homes fell 22.6%.