Tech stock drops historically slow California hiring
An analysis of 50 years of data shows that when the Nasdaq Composite falls by 10% or more, job growth in the state typically stalls and personal income increases shrink.
By Vincent Parker ·
A recent slide in technology stocks has prompted concerns about the health of the California economy. As fears grow that the rally driven by artificial intelligence optimism may be reversing, analysts are looking to historical data to gauge the potential impact on local payrolls and household budgets.
Jonathan Lansner, a business columnist for the Southern California News Group, compared 50 years of Nasdaq Composite Index performance against state employment and personal income records. The Nasdaq Composite serves as the primary benchmark for the tech sector, which holds a large share of California's economic activity.
The analysis defined a market crash as a 10% or greater drop in the index over a one-year period. Since 1976, the Nasdaq has entered this crash mode 21% of the time. The most severe decline recorded was a 52% loss in the year ending in the third quarter of 2001.
Employment trends in California correlate closely with these tech market downturns. In the year following a Nasdaq crash, the number of employed Californians fell 43% of the time. The median annual job growth rate during these post-crash periods was just 0.2%, a sharp contrast to the 1.6% annual increase that has been the norm since 1976.
The worst job drop occurred during the Great Recession, when employment declined by 5% in the year ending in the third quarter of 2009. Personal income figures also reflect this economic cooling. In the year after a tech crash, inflation-adjusted total personal income fell 18% of the time.
The median growth in personal income following a Nasdaq crash was 2.3%, compared to a typical 2.8% increase over the half-century period studied. The steepest income decline was a 3% drop in the year ending in the fourth quarter of 2009. Historical crashes have coincided with specific economic events, including the 1980s inflation fight, the early 1990s recession, the dot-com bubble burst, and the pandemic-related business disruptions.
Lansner noted that the Nasdaq has delivered a median annual profit of 15% for investors over the past 50 years. This wealth creation remains a major component of the state's business climate, particularly in the Bay Area. The current one-year gain in the Nasdaq stands at 8% as of October, down from nearly 50% in April.
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