The Bay Area Index: 2007 Second Quarter Report

The Bay Area Index, produced quarterly by the Association of Bay Area Governments, is a leading economic indicator used to validate basic modeling assumptions concerning near-term employment growth. Third quarter index data and analysis is as follows:

Short-Term Economic Forecast
ABAG annually hosts a Regional Economic Outlook conference, where state and regional economists present their forecasts for the California and Bay Area economies. At ABAG's January 2007 Regional Economic Outlook conference, staff presented a regional economic forecast for 2007 and 2008. That forecast anticipates that while the region's economy has not returned to Dot Com era levels, the Bay Area is bouncing back. Specifically, the forecast anticipates 2007 to be characterized by moderate growth with increased activity in 2007 and 2008.

Recent Bay Area Index Trends
From a Dot Com era peak of 2.10 in October 2000, the Index fell to a low of 1.53 in May 2003. As with any economic index, there are up-and-down patterns between each period which are attributable to national and regional economic trends. In the case of the San Francisco Bay Area, the largest downward factor in regional trends was the bursting of the Dot Com bubble. Playing against this larger backdrop are rallies in consumer confidence, as well as precipitous drops, as in the aftermath of the September 11th attacks in 2001.

Since July 2003, the Index has resumed a steady climb, reaching 1.98 in June 2007.

The chart below depicts Index data from 1991 through June 2007. The Index's general trend is continued upward, moderate growth as predicted in ABAG's Regional Economic Outlook for 2007.

Analysis
Rising productivity and concurrently rising household incomes since 2003 help to account for both increasing retail sales and consumer confidence through 2007. These factors in turn push along airline travel and demand for technology products. According to an article appearing on CircuiTree, the circuit board industry newsletter, rising circuit board demand for military uses account for much of the gains in industry bookings.

Factors mitigating a stronger economic recovery include a slowing down in housing appreciation in the Bay Area. Factors supporting the economic recovery include gains earlier this year in the Standard & Poor's 500 Index, moderate growth in regional sales, and increases in airline passenger voiume.

While the Index has increased in recent months, the region may have slower economic activity this fall. Given increased demand for the holiday season, ABAG's outlook for the remainder of 2007 continues to be positive through the end of the year, although recent decreases in the stock market attributed to the home mortgage market are likely to be a factor that could reduce future index values.

About the Bay Area Index
ABAG's Bay Area Index is a leading economic indicator used to validate basic modeling assumptions concerning near-term employment growth. The index is calculated using data from the Bureau of Labor Statistics' Consumer Price Index, regional sales data, airline passenger activity, Standard and Poor's 500 Index, and a circuit board book-to-bill ratio. The book-to-bill ratio is a measure of the supply and demand for semiconductor goods. Using 12-month moving averages, these data are equally weighted and calculated to produce the Bay Area Index. ABAG will provide Index data and analysis on a quarterly basis on this webpage.

Staff Contact: Hing Wong, Regional Planner, 510.464.7966