ESCONDIDO - California's economy will continue to slow, but maybe it won't, or maybe it could tip into recession, a federal economist said Wednesday in a speech thick with caveats.

And while San Diego County's economy can no longer count on construction and soaring home equity as cushions against a national downturn, the region's expanding technology sector could help keep a range of other businesses chugging along, said Gary Zimmerman, senior economist with the Federal Reserve Bank of San Francisco. He spoke to more than 200 civic and business leaders at a luncheon hosted by the Escondido Chamber of Commerce.

On most measures, Southern California's economy has remained strong, economists have said in recent months. But a dramatic dip in home prices and skyrocketing foreclosure numbers in the last year have chilled the construction industry and frozen business for the housing and mortgage industries. Unemployment in San Diego County edged up to 4.8 percent in November, according to the latest estimates from the state agency, and a recent report from the U.S. Bureau of Labor Statistics showed a small, but sharp jump to 5 percent in December that may have been mirrored locally.

Like Zimmerman, many economists have predicted the economy will putter along the precipice of a recession, while others have warned it is imminent or may have already begun. Rising gas prices could help clean out consumers' pockets, resulting in less consumer spending. Crude oil briefly touched $100 a barrel earlier this month, sparking a round of pessimism.

"The good news this morning on the way in: oil, $90 a barrel," Zimmerman said to tentative laughter Wednesday. "Who thought that was going to be good news?"

Zimmerman said rising interest rates could bode ill for construction and other industries that depend heavily on credit. On the other hand, data from financial markets indicate that the federal policymakers could cut the key rate on interbank loans from 4.25 percent, a move that could spur investment.

A brief, but mild recession that affected most of the nation in 2001 was all but unnoticed in San Diego County, thanks partly to a construction boom in San Diego's northern suburbs and growing equity that put money in many homeowners' pockets.

Those days are over, but the region's tech businesses are thriving largely on exports to other regions of the United States and the world, Zimmerman said. Exporters have benefited from a weakened U.S. dollar, which is making American-made products and services more competitive abroad, he said.

The credit crunch will weigh heavily on California's economy, leading businesses to only expand their work forces by an average of 1 percent in 2008, the fourth straight year of slowing, according to economic data Zimmerman presented. The pace of hiring will probably pick up near the end of the year and continue through 2009, he said.

The slowing economy and a tighter grip on credit have prompted the Bank of Escondido to mete out loans more carefully to small businesses - its key customers, Chief Credit Officer Mike Churchwell said in an interview after hearing Zimmerman's speech. The bank no longer loans to companies that depend on a booming economy to help them cover their debt, he said.

"We don't want to give people the rope to hang themselves with," Churchwell said. "We want to help clients make good decisions."

- Contact staff writer Chris Bagley at 760-740-5444 or cbagley@nctimes.com.