A likely increase in defense spending under a Donald Trump presidency is expected to benefit technology companies that supply the military, spurring Bay Area and California economic growth to a greater degree than previously thought, according to a new UCLA Anderson Forecast report.
The expected rise in defense spending would bolster defense contractors in California, said the report, published Tuesday.
“The increase in defense spending will be disproportionately directed to California as sophisticated airplanes, weaponry, missiles and ships require the technology that is produced here,” the Anderson Forecast said.
Stimulus from defense spending could benefit tech companies in the Bay Area and Silicon Valley that might supply software or hardware used by the military.
“We are anticipating an additional boost to the California economy from more defense spending,” Jerry Nickelsburg, a senior economist with the Anderson Forecast, said in an interview with this newspaper. “The demand for sophisticated defense equipment will benefit the Bay Area, although not as much as Southern California.”
The Anderson Forecast projected California will achieve 1.8 percent annual job growth in 2017 and 1.3 percent in 2018. Previously, it had said the California job market would expand by an annual pace of 1.7 percent in 2017 and 1.1 percent in 2018.
A separate forecast from Beacon Economics, released Monday, projected that the Bay Area will outperform California and the nation in the coming years — although employment growth will be more sluggish in 2017 than 2016.
“Although South Bay job growth has slowed compared to recent red-hot years, the region’s performance would still be considered robust by most measures,” Beacon economists stated in their quarterly report.
Santa Clara County’s jobs will grow 2.5 percent in 2017, a bit slower than the 3.3 percent growth rate for jobs during 2016 but stronger growth than for California, according to the Beacon quarterly forecast.
“Overall, the future of the South Bay labor market looks bright,” Beacon stated in its report. “Tech giant Apple recently announced plans to build a 4.15-million-square-foot research complex in North San Jose, while LeEco plans to establish its global headquarters in San Jose. Both of these projects are expected to create tens of thousands of new jobs, some of them arriving before the end of this year.”
The East Bay job market is expected to grow by roughly 2 percent in 2017, down from 2.7 percent growth in 2016, Beacon estimated.
“Following heated gains last year, job growth in the East Bay has cooled,” Beacon said in its report.
The San Francisco-San Mateo region will add jobs at a 1.2 percent growth rate in 2017, which would be half of the 2.4 percent pace in 2016, the Beacon report said.
One huge uncertainty looming over California, however, is the impact of any large deportation or exodus of illegal immigrants under a Trump administration.
“California is fertile ground for this deportation policy,” the Anderson Forecast stated. Some studies estimate that about 24 percent of the nation’s undocumented immigrants reside in California, the economists said in their report.
Farms employ about 2.3 percent of California’s workforce.
But studies have shown that farmers in Arizona, Alabama and Georgia weren’t able to harvest all of their crops when officials clamped down on illegal immigrants in those states.
“It is estimated that half the farm workers in California are undocumented,” the Anderson Forecast stated. “If these numbers are even close, there will be a crisis in the Central Valley,” in the event of large deportations.
Trump economic policies that feature tax cuts and infrastructure spending are likely to stimulate the nation’s economy, according to David Shulman, a senior economist with the Anderson Forecast.
But that prescription for fiscal stimulus also could unleash larger deficits — coming on the heels of loose monetary policy by a Federal Reserve whose chairwoman, Janet Yellen, was appointed by President Barack Obama.
“We will switch from reckless monetary policy under the Fed to reckless fiscal policy under Donald Trump,” Shulman said in an interview.
Currently, the nation’s economy is close to full employment. That could improve even more as a result of Trump’s economic policies, Shulman said.
“The Trump policies will keep the U.S. at full employment for at least two years,” he said.
