Employment in the Pacific region grew by 486,000 jobs in the 12 months ending September 2001, a 2.7-percent gain. The rate of growth varied by State, from 2-percent growth in Arizona and Hawaii to more than 4-percent growth in Nevada. California added 386,000 jobs in the 12 months ending in September, a 2.7-percent gain. The economy in Southern California and Central Valley remain robust compared with the San Francisco and Silicon Valley areas, which are heavily dependent on the tourism and high-technology industries that are on the downturn. Telling a tale of two economies, Los Angeles just approved plans to build a $1 billion shopping, dining, and entertainment district around downtown Staples Center arena, while Cisco Systems reduced its proposed 6-million-square-foot San Jose headquarters campus to 3 million square feet and postponed the groundbreaking indefinitely.

One of the Nation’s fastest growing economies in the 1990s, the Phoenix area, added 32,000 jobs in the 12 months ending September 2001, a 2-percent increase but significantly below the rate of growth in the preceding 12-month period. In the midst of a general contraction of electronics and telecommunications manufacturing, Intel opened its new $2 billion chip plant in Chandler, adding 1,000 new jobs.

Employment in Las Vegas grew at a robust 4.9-percent rate in the 12 months ending September 2001. However, the area has experienced a reduction in tourism, as indicated by increased vacancies in hotels and casinos and a layoff of approximately 15,000 workers. Weekend occupancy has since improved to more than 90 percent in response to heavy promotions, and industry officials hope that big fall shows and conventions will help boost weekday visitor counts. Although Hawaii employment grew 2 percent in the 12 months ending September, the slowing of the global economy had already knocked its air tourism-dependent economy down to only 0.6-percent job growth in the third quarter, and the quarter closed with steep declines in visitor arrivals and widespread layoffs.

Home sales continued at robust rates through most of the third quarter in the majority of major markets in the region. In the Pacific region, homebuilders took out permits for 146,000 single-family homes during the first three quarters of 2001, a 5-percent increase compared with the first 9 months of 2000. Building permit activity in the period increased by 2 percent in Hawaii and Arizona, 6 percent in California, and 9 percent in Nevada. Reflecting Southern California’s strong economy, DataQuick reported total home sales (new and resales) up 1 percent for the first 9 months of 2001. Weaker economic conditions in the San Francisco Bay Area have resulted in a 17-percent decline in total sales for the first 9 months of 2001. The California Association of REALTORS^® projected that statewide sales for 2001 will total approximately 504,000 homes, off only 6 percent from 2000’s near-record level.

In the Phoenix area builders have sold more than 24,000 new homes in the first 9 months of 2001, a 12-percent gain over a year earlier, according to the Phoenix Housing Market Letter. Existing home sales have been very strong in the first 9 months of 2001, up 8 percent compared with the same period in 2000. The Las Vegas market likewise had robust home sales in the first three quarters of this year. The Las Vegas Housing Market Letter reported new and existing home sales up more than 9 and 17 percent, respectively, and new home sales for 2001 are expected to be the second highest on record.

Multifamily permits in the Pacific region in the first 9 months of 2001 fell slightly to 45,000 units compared with the same period in 2000; multifamily building permit activity in California declined 12 percent to 27,450 units. Overall tight rental market conditions in the San Francisco Bay Area eased slightly in 2001, and the apartment vacancy rate increased to a more balanced 4.5 percent, the highest level in the past 5 years. Apartment vacancy rates at larger, upper-end developments in the three Bay counties most affected by layoffs and lower demand—San Francisco, San Mateo, and Santa Clara—increased from 3 to 6 percent in just one quarter, whereas the North and East Bay remained tight.

Although most rental markets in Southern California are either balanced or tight, there is little pressure on rents. The Los Angeles County rental market is now tight with an apartment vacancy rate of 4 percent. The Orange County, San Diego County, southern Santa Barbara County, and Ventura County rental markets remain tight with vacancy rates of 3 percent or less. In the Riverside-San Bernardino area, where a number of workers in Orange and Los Angeles Counties find affordable rentals, vacancies declined 1 percentage point during the third quarter to 6 percent.

In the Phoenix metropolitan area, rental market conditions remained balanced, and the apartment vacancy rate was reported to be approximately 7.5 percent as of the third quarter. Vacancy rates were higher in the upper price ranges and in the active submarkets, where new units are entering the market. The opening of the Chandler regional mall and the rapid completion of the Loop 101 links to I–10 on the west side and I–17 to Scottsdale have increased apartment development in these submarkets. Rent increases in the metropolitan area averaged approximately 3.5 percent during the 12 months ending in September 2001. Multifamily production in 2001 through September is off 10 percent compared with the past year at this time.

According to CB Richard Ellis, the Las Vegas rental market ended the third quarter with a balanced apartment vacancy rate of 6.2 percent. Vacancies rates ranged from 5.2 percent in higher end rental properties to more than 7 percent for basic market rate rentals. Multifamily building permit activity in the first 9 months of 2001 totaled 6,912 units— nearly double the volume for comparable period in 2000 when multifamily activity hit a 7-year low. The 2001 multifamily levels, 9,000 units annually, are on pace with the average in the latter half of the 1990s.

Spotlight on Sacramento, California

The Sacramento metropolitan area consists of Sacramento, Placer, and El Dorado Counties. Between 1990 and 2000, the population of the area grew by 31,600 annually, or 2 percent, to 1.8 million in 2000. The population of the city of Sacramento grew at a more modest 1-percent annual rate to 407,000 as of 2000. Approximately 60 percent of the growth in the metropolitan area has occurred in Sacramento County. Most of the population increase was from in-migration, from the San Francisco Bay Area in response to the Sacramento area’s rapid employment growth and lower housing prices.

The Sacramento area has a diversified economy, including State government, high-technology manufacturing, higher education, warehousing and distribution, and business services. State government employs 87,000 people, or 12 percent of the total, providing a stable base for the economy. Economic growth in recent years has resulted from influx or expansion of high-technology manufacturing companies. Intel, Hewlett-Packard, and NEC are among the largest private employers in the area. Oracle is consolidating its Bay Area e-businesses in Auburn and could double its staff to 1,200 employees in 2002. TRW plans to move its Electromagnetic Systems Laboratory and its 800 jobs to the area by 2003.

The area is a prime location for new facilities and expansions because of cost advantages in land prices, housing for employees, seismic stability, and a highly educated labor force. A major draw for high-technology companies is the University of California at Davis, noted for biotechnology, natural sciences, and computer research. The university has an enrollment of 26,000 students and employs 10,800 faculty and staff. In addition, the area is home to California State University–Sacramento; with 20,300 students, this university is one of the faster-growing universities in the State system and is noted for computer engineering.

During the past 5 years employment in the area has increased an average of 3.9 percent annually. In the 12 months ending September 2001, nonfarm employment increased 3.7 percent, or 26,300 jobs; however, there are signs the economic slowdown is affecting the Sacramento economy. Hewlett-Packard and NEC implemented layoffs and hiring freezes this year, and NEC has halted construction on a $1.4 billion chip plant. The State recently imposed a hiring freeze due to declining State revenues and a looming budget deficit. Despite the slowdown, the unemployment rate of 3.9 percent was unchanged from a year ago. Employment growth in 2002 is expected to be more moderate, probably about 1.5 percent.

Homebuilding activity in the Sacramento metropolitan area has increased steadily since the beginning of 1998. In 1998 and 1999, single-family building permit activity totaled approximately 10,100 homes annually, a 36-percent increase compared with the average annual activity from 1991 through 1997. Activity in 2000 totaled 12,425 homes, a 23-percent increase over the average for the prior 2 years. With continued economic growth in the area and favorable financing conditions, the new home market during the first 9 months of 2001 has been very strong. During the period, permits have been issued for 10,700 homes, a 30-percent increase over the same period in 2000. New home sales in subdivisions were strong in the first half of the year, according to the Gregory Group, a local market research company. Sales of entry- and mid-level homes remain robust; however, sales of homes in higher price ranges ($350,000 or more) have been weaker in 2001 as many potential buyers from the Bay Area faced weaker market conditions and lower list prices for their existing homes. The Gregory Group reported that new home sales for all 2001 are expected to total 10,750 homes, down 12 percent from the record of 12,216 sales in 2000.

The Sacramento area rental market is generally tight. A CB Richard Ellis survey of larger apartment properties showed a drop in vacancy rate, from 4.4 percent in early 1998 to 1.8 percent as of the second quarter of 2001. In response to substantial overbuilding in the 1980s and economic downturn in the first half of the 1990s, multifamily housing construction was relatively modest, averaging 885 units annually from 1991 through 1997. With the economic growth in the area the rental market tightened, and production increased significantly. From 1998 through 2000, an average of 2,900 multifamily units permits were issued annually. A record number of apartment completions during the past 12 months has caused a moderate rise in vacancies and more competitive market conditions. Concessions are now being offered, especially in higher end properties most affected by high-technology industry layoffs. Builder and lender caution has resulted in a significant reduction in multifamily permit activity for 2001, helping to avoid overbuilding. In the first 9 months of 2001, 1,900 units were issued permits compared with 2,400 for the same period in 2000, a 21-percent drop. Although there will be fewer completions in 2002, local observers expect that absorption will be somewhat slower and rent increases moderate.