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.
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.
Fault line a block away
Finding a home can be even more difficult. New arrival Frank Bergandi, the president of a software company, Objectivity Inc., compares house hunting to big game hunting. "You're going after things that can kill you," he says.
When he finally located a house in Los Gatos, he asked the real estate agent if the town had been heavily damaged in an earlier earthquake. "Oh, yes," the agent replied. "Is this house on a fault line?" he further inquired. "Oh no," said the agent, the fault line is a block and a half away. Bergandi bought the house.
Coldwell Banker real estate agent Buffy Bianchini says Mr. Bergandi's story is not that unusual. Last summer, she says, people started camping out to make offers for houses going on the market.
"I've had properties sell even before they get on the market," she recounts. "There's so much money in the area with people cashing in their stocks. They are putting it into real estate."
Renting a house is not any easier. Only a few blocks from the glass-and-steel offices on First Street, one man is offering a two-bedroom house with two baths and a two-car garage for $1,800 per month. "Look around," he says, "this is a good deal." He might be right. The vacancy rate in the area is under 2 percent. Last year, apartment rents soared by 20 percent after rising 8 percent in 1995.
The high cost of living makes it more challenging to attract new workers. Jackie Macdonald, a general partner with a venture capital firm, Sippl Macdonald in Menlo Park, says she spends a lot of her time helping companies she invests in to find talent. "It's getting more and more difficult to find staff," she complains.
The growth pains are of concern to Steve Tedesco, president of the San Jose Chamber of Commerce. He cites the need for new sewerage systems, schools, hotels, and roads. "We couldn't handle every job the private sector is developing right now," he says.
An industry-government organization, Joint Venture: Silicon Valley Network (www.jointventure.org) is trying to find solutions to some of the problems caused by adding 125,000 new jobs in the past five years. It has raised $23 million for an educational project to improve student achievement. That program is already having an impact. In one fourth grade, 80 percent of the students are now performing at or above grade level - compared with 20 percent before the project started.
Two years ago, voters approved a $4 billion ballot measure to expand roads and improve mass transportation. But this is currently tied up in court. As a result, organizations such as Joint Venture encourage telecommuting to cut down on traffic. It's publishing a guidebook on what equipment is needed to work from home. In companies that have started telecommuting, Joint Venture estimates, workers now work from home two days a week.
"We have a term we call the vital cycle, which looks at the economy and quality-of-life issues such as air and transportation," says Becky Morgan, president of Joint Venture. "We hope that our work will keep that vital cycle in better balance."
The boom has resulted in some strange sights. On the corner of First and Component, workers are erecting the steel shell of a new building in a field that used to be a strawberry patch. Only a short distance behind the building is a wooden-frame house.
The seller of the land, would only sell the land if his house remained. Although the seller passed on, the house sits directly in back of the new building. It will be refurbished and made into a meeting center. It's sure to become a tourist attraction. Greenspan should not miss it - if he can get a hotel room.