John Williams is in charge of the largest territory -- and the largest economic unit -- in the Federal Reserve System. The San Francisco-based 12th District of the Federal Reserve covers nine western states, including California, and ranks first among the districts in size of its economy. Covering 1.3 million square miles, the district is home to 21 percent of the nation's population. The 25.2 million workers in the district equate to 19 percent of the non-farm payroll employment in the nation -- and 21 percent of the total personal income for workers in the country. This newspaper recently sat down with Williams, president of the Federal Reserve Bank in San Francisco, to discuss the regional economy. His comments have been edited for length and clarity.

Q What's your perception of the Bay Area economy?

A The Bay Area economy is improving dramatically. The exception is the outlying areas that were kind of ground central of the housing boom and were really hit hard by the housing crash.

Q How does the economy look in the rest of California?

A Outside of the Bay Area there are still problems. Parts of California are still struggling from the fallout from the housing crash and the foreclosure crisis. You don't have to go that far outside the Bay Area before you see areas with high unemployment and economic challenges. In the Central Valley those problems are severe.

Q How do you assess the Santa Clara County economy?


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A Tech-centered businesses are having a great time now. There is a lot of tech job growth in Santa Clara County. The challenge with technology is we are moving away from a tech sector that builds and designs things to one that does more application development and business services. A lot of jobs are being created here and a lot of wealth is being created because of these tech companies.

Q What's your assessment of the San Francisco economy?

A The economy is on fire in San Francisco. Commercial real estate is strong. Unemployment has come way down. It's as strong as it has ever been.

Q How do things look in the East Bay?

A The East Bay economy suffered during the downturn. The hot market in San Francisco has created a boost in demand in the East Bay for office space. It's a good sign that some tech companies are setting up shop in the East Bay.

Q Regardless of the strength of the Bay Area economy, are there still challenges?

A There are booms and there are slumps. There are cycles. These really good times won't last forever. It won't always be the land of milk and honey.

Q How does construction look?

A Construction is one of the tough parts of the economy. We clearly overbuilt in the 2000s. We overbuild housing. We overbuilt commercial real estate. The commercial market is coming back. Home prices have come back. But residential construction has responded much more slowly than we would have thought.

Q Why has home building not rebounded?

A There is a psychological scarring effect in the housing market. A lot of people went into buying homes thinking the price would always go up, that they were great investments. When housing collapsed, people got afraid to re-enter. Banks and other lenders were also scarred. Lenders are being very cautious, they are waiting to see how the housing market recovers and what the new normal will be.

Q What's your forecast for construction?

A Over the longer term, I'm pretty optimistic about construction. In the short run, it's going to be a bit of a slog.

Q How does manufacturing look in the region?

A Manufacturing is in a long-term trend of fewer jobs and higher output. Manufacturing productivity is very high. But at the same time, manufacturing employment is shrinking. In areas where we have high value-added products, in the knowledge driven areas of manufacturing, that is where we will see some growth.

Q What about retail?

A Retail is driven by consumer spending, which is on a good track.

Q Tech is booming, but is it a bubble?

A During the dot-com bubble, why did established companies such as IBM, Microsoft and Intel fall? A lot of the demand for their products and services were coming from dot-com companies that were a mirage. To what extent are those conditions in existence today? There are arguments that this time, the tech boom is not as pervasive. A lot of these apps that are being created do not create spinoff demand for hardware. This time, maybe the spillover effects wouldn't be as bad nationwide.

Q What would the end of the tech boom mean for the Bay Area economy?

A The fallout from another bubble could be particularly bad here in the Bay Area. If the wealth of all the employees at Facebook, Google, Apple or Twitter or other tech companies were to plummet, that would obviously affect the local economy.

Q Starting with the rebound from the 1990s recession, each recovery seems to be weaker than the previous one. Are we having yet another jobless recovery?

A The current recovery is subpar. But maybe this is what the recoveries of the future will look like. We are entering a phase of slower GDP growth. Job growth will be strong enough to bring unemployment down to 5.25 percent nationally in a few years. The recession ended in mid-2009. We might reach full employment in late 2015 to early 2016. That is a very long time from the end of the recession back to full employment.

Contact George Avalos at 408-859-5167. Follow him at Twitter.com/georgeavalos.

John Williams
Job: President and CEO of the Federal Reserve Bank of San Francisco
Age: 52
Residence: East Bay

FIVE THINGS ABOUT JOHN WILLIAMS
First job: Newspaper delivery, first the Sacramento Bee, then the San Francisco.
Favorite indulgence: Pizza (spent several years managing Blondie's pizza in Berkeley and San Francisco).
Favorite past time: Traveling to places he's never been.
Favorite quote: "Though the course may change sometimes, rivers always reach the sea," by songwriters Jimmy Page and Robert Plant.
Big fan of science fiction/fantasy authors J.R.R. Tolkien, Neil Gaiman, Terry Pratchett, William Gibson.