San Francisco's job growth has stalled and its unemployment rate has increased from 4.1% to 6.5% over the past year and half. Despite this news, the severity of the current downturn pales in comparison to the 2001 recession which, at its nadir, saw employment shrink by 8.6% year over year and the unemployment rate reach 7%.

As noted in the San Francisco Economic Forecast by Beacon Economics, a sharp contraction in business investment — one of the region's key economic drivers — evaporated job demand in 2001.

In contrast, the current slowdown has been largely driven by a downturn in housing activity, which is not a key growth driver in the already densely populated San Francisco metro area.

Compared to a 42% year-to-date drop in residential building permits for the state of California as a whole, permits in San Francisco are down by only 27%. Moreover, despite the decline in new house construction, employment in the construction industry has remained essentially unchanged over the past 12 months.

Looking forward, the effects of the slowdown in growth across the country will probably depress demand for the goods and services produced in the San Francisco area through the first half of 2009 and possibly into 2010.

As a result, employment will probably shrink and the unemployment rate in the metro area could well hit 7% by mid 2009.

This slowdown in total employment is likely to further depress single-family house construction, which has fallen by 51% year to date.

While rental demand is near a seven-year high, its fundamentals will soften by mid 2009, due to slowing net migration and the weakening job market.

Finally, although demand for office space is likely to be supported by continuing growth of firms in computer-system design, demand for commercial space is likely to cool in the second half of 2009 and through 2010. This outlook is based on the decline in office-based employment in San Francisco over the past year.

Finally, although the short-term prospects for San Francisco will be depressed by recessionary conditions across the country, its highly skilled workforce and excellent quality of life assure its longer-term economic health.