Battered Bay Area senses start of a turnaround

By Jim Hopkins
USA Today

SAN FRANCISCO — There are growing signs of economic recovery in Silicon Valley, the heart of the tech industry, which could fuel a stronger U.S. rebound.

"The worst appears to be over," Sung Won Sohn, Wells Fargo Bank's chief economist, said in a recent report predicting slow growth through the middle of next year. Silicon Valley is crucial to the national economy because it's one of the nation's key engines for innovation and job growth.

Signs of the shift:

• Job losses slow. Santa Clara County — home to Intel, Hewlett-Packard and other tech giants — had 959,800 jobs in October. That's down 3.2 percent from October 2001 but a big improvement from March's drop of 8.1 percent, biggest in two decades.

An important source of strength: business services, which include e-commerce and temporary help agencies. A year ago, that category had lost 24,300 jobs in 12 months. In the past 12 months, the sector has lost only 2,600 jobs, a relative trickle.

Many of the biggest job cuts are over. Intel, which last week boosted fourth-quarter revenue estimates because of higher sales in Asia, eliminated 4,000 jobs worldwide in July. The No. 1 computer-chip maker, which has 6,000 of its 80,000 employees in the valley, could not say how many cuts were in the county.

• Venture capitalists return. VCs, who invest on behalf of institutions and wealthy individuals, pumped $5.6 billion into area start-ups during the first nine months of this year, 33.1 percent of the total $16.9 billion invested nationwide. That's a higher share than the 30.9 percent last year and 32.9 percent in 2000.

• Customers are buying. Companies that slashed overhead by delaying hardware and software investments are feeling pressure to spend because equipment is growing obsolete. Arial International, a Seattle consultant to financial service firms, has two laptops more than three years old and a desktop computer more than two years old. The five-employee company likely will soon spend up to $7,000 to replace them, says owner Astrid Rial.

Santa Clara County still has 106,000 fewer jobs than the record 1.06 million in December 2000. A surprise spike in the national jobless rate also could be a worrisome sign for the county.

The Bay Area, including the valley, remains one of the weakest regions because it depends so much on tech. At the peak of the tech boom two years ago, 32 percent of the area's payroll came from tech, vs. less than 8 percent nationwide.