Where Regional Economies Are Going Into Hyperdrive
In Silicon Valley and more than a dozen other metro areas, hotels are chockablock, business is booming, and rental cars scarce.
SANTA CLARA, CALIF.
Federal Reserve chairman Alan Greenspan was confident last week that the US economy was slowing enough so he didn't need to raise interest rates.Skip to next paragraph
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But Mr. Greenspan hasn't tried to get a hotel room in Silicon Valley, buy a house here, hire a programmer, or find someone to roast chicken at Pollo Rey.
If Greenspan tried to do any of these things, he would quickly discover that an economic sonic boom is reverberating through the region.
On a recent night, every hotel in Santa Clara, Calif., reported 100 percent occupancy. More than 100 restaurants were vying for bus boys and chefs in the classified pages of the San Jose Mercury News. And, last week, not a single rental car was available from Avis in San Francisco. With or without an interest-rate hike, the nation's computer hub is operating at breakneck economic speed.
Santa Clara is not alone. "There are more than a dozen metro areas that are benefiting from the boom in high technology and expanding trade with East Asia," says Sara Johnson, chief regional economist for DRI/McGraw Hill in Lexington, Mass. The front runners: Austin, Texas, Raleigh-Durham, N.C., Denver, Boston, Phoenix, Tucson, Ariz., Las Vegas, Salt Lake City, Portland, Ore., and Seattle.
Of course, the whole US economy is not so vibrant which is why Greenspan decided he could wait on another interest-rate hikes. Today, the National Association of Business Economists will release a forecast that the second-quarter gross domestic product is slowing to 2 percent annual growth compared with 5.6 percent in the first quarter. The 37 forecasters predict the unemployment rate will rise to 5.2 percent this year, up from 4.9 percent last month.
Signs of a slowdown
There are signs of a national slowdown, says Lyle Gramley, a consulting economist with the Mortgage Bankers Association in Washington. Consumers are taking a break. This has lead to higher inventories. As inventories have increased, business has slowed production. "What's the significance?" asks Mr. Gramley, a former governor of the Federal Reserve. He answers, "Not much - I think we will bounce back soon."
If there is a slowdown, it's not noticeable in places like Santa Clara, which are riding the back of a big capital spending boom. Companies are buying expensive computer equipment, because they are convinced good times are here to stay. Relatively tight labor markets are also an impetus to invest in new computer-driven equipment. And, technology is changing so quickly that replacement cycles are shortening.
Silicon Valley has been particularly fortunate because it is providing a lot of hot-selling multimedia and Internet equipment, says regional economist David Hensley of New York-based investment banker Salomon Brothers. "They are more on the cutting edge of manufacturing versus the downstream manufacturing, which has been hurt by a global overcapacity in chips," says Mr. Hensley.
It's not hard to see how this plays out on Main Street, or in Santa Clara's case, First Street, a broad avenue that leads to campus-like corporate offices.
Moving trucks are carting in furniture and equipment. Signs announce the locations of new offices. "There is an explosion going on out there," says Carol Hunt, research analyst at the Santa Clara Center for Urban Analysis.
In 1996, job growth in the area hit 4.7 percent annual rate - well above state and federal levels. The average real wage shot up 5.1 percent in the county.
Office space is in such demand (5 percent vacancy) that Sun Microsystems Inc., recently leapt at the opportunity to buy 71 acres of a mental institution from the state of California for $51 million. Some 3,600 people will work in the new research and development center.