All of these indicators were recorded before the sharp worldwide and U.S. stock market decline that started after a sharp selloff in the Chinese stock market and other worldwide equity markets.
I am not a stock market expert but here are some thoughts. The Chinese stock market selloff could be connected to concerns about a slowing economy there. The Chinese devaluation of the yuan adds credibility to this hypothesis. And perhaps investors thought Chinese stocks were too richly valued.
In the U.S. prior to the Chinese events, there was no indication of a slowing economy. The debate was when the Federal Reserve Bank would raise short term interest rates. Of course, here as well investors may have thought that stock valuations were high.
What might these trends mean for the national, state and regional economy?
There are no obvious short term positives here. The question is how serious might the negatives be. The slowing Chinese economy and the devaluation will make American goods slightly less competitive in comparison to Chinese goods and will make activities like tourism more expensive for Chinese visitors. These moves by themselves are not likely to substantially affect the pace of U,S, economic growth.
A more serious outcome occurs if the Chinese slowdown leads to slowing growth worldwide as the financial crisis in 2007 did.
For California the impacts are likely to be negative and modest. While China is our third largest export market, the total value of exports to China is less than 1% of our economic output. Currently foreign tourism is setting records in visitors,, flights and hotel bookings and a small increase in the cost to Chinese visitors is unlikely to have much impact.
There will probably be at least a short term decline in capital gains revenues from the stock market decline if it persists. This will come in the context of revenues that have been rising faster than forecast for several months as a result of strong job growth. Other revenues will slow if these events do cause more than a small temporary slowdown in state growth.
Silicon Valley is a more complicated case because the stock market selloff in technology shares is an additional factor here. There may be postponement of IPOs and new technology investments until the stock market outlook is clarified. Sales to China of technology products are unlikely to be slowed much by the small devaluation and may eventually be aided if these moves boost Chinese consumer spending.
And as reported in the last blog, right now the San Jose metro area is plus 60,000 jobs (6%) for the past 12 months as well as posting the second highest VC funding since the dot.com boom.
So for now it is a "stay tuned" situation to see how the next couple of months go in world economies and stock markets, which sometimes are and sometimes not connected much.
