Economists: Bay Area economy will dip in ‘08

The ongoing burst of the real-estate bubble and the resulting climate crunch is ultimately going to spread upward from the subprime market to affect broad consumer spending, with unpleasant implications for the San Francisco-Bay Area econoomy.

Speaking at The Bay Area Economic Forecast Series at the Hyatt Regency San Francisco Wednesday, Beacon Economics economists Christopher Thornberg and Jon Haveman outlined how consumers using home equity have been spending at an unsustainable rate and will have to retrench – creating either a mild downturn or a recession over the course of 2008, with recovery likely for 2009. In either scenario, they predicted a drop in payrolls and a rise in unemployment rates, though the latter should go no higher than 5.5 percent.

The downturn will delay personal income growth and affect local governments because of a drop in taxable sales, Haveman said.

The tourism industry may also feel a hit because of declining spending, or may turn out well, Haveman added: it all depends on whether foreign visitors lured by the cheap dollar come and supplement decreased local spending.

San Francisco’s previous economic bust of 2001 was made sharper by the terrorist attacks of September 11 that affected the tourist industry, but didn’t have a fall in housing prices or a drop in consumer spending, Haveman said. Though Dataquick figures released regularly do not show a drop in home prices,he added, those figures give a misleading figure because they don’t report the types of homes being sold, while prices actually are declining in The City.

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