The Bay Area economy basked during the dot-com boom of the late 1990s, then was beaten down like a pinata for several years.

But now, for the first time in a while, economists believe that similar traces of those boom days could be returning.

``The businesses are doing fine, income is on the way up, and it's an economy that is on the mend,'' said Chris Thornberg, senior economist with the UCLA Anderson Forecast. ``So in this sense the area is moving forward, and the state of the Bay Area is that it's doing fine.''

Even if it's not where it was back in the heyday, it might be enough to bring a slight swagger.

``The thing that was remarkable about 2005 was that the employment started to expand in the Bay Area after an extended period where we kept losing jobs,'' said Kei Matsuda, senior economist for San Francisco-based Union Bank of California. ``Even though the numbers weren't staggering, turning from negative to positive is a large psychological shift as to what is going on in the economy.''

The Bay Area lost more than 400,000 jobs from 2001 to 2004, according to the Bay Area Council.

Then, like the rest of the country, the local economy was hit by the rising energy prices that followed hurricanes Katrina and Rita in 2005.

With gas prices, home heating costs and electricity headed north, consumers were forced to reduce their spending, hurting retail sales, which have always been a staple of the Bay Area economy.

However,

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while the region's economy took a hit, it absorbed it better than other regions of the country.

Diversity is key

The Bay Area is diverse enough that if one industry should take a blow, others can help keep things afloat.

While it's home to Silicon Valley and high-tech leaders such as Google Inc., Yahoo Inc., Hewlett-Packard Co., Oracle Corp., and Apple Computer Inc., the Bay Area also hosts a wide range of sectors and companies that strengthen the economic base, companies such as oil giant Chevron Corp. in San Ramon, grocer Safeway Inc. in Pleasanton and biotechnology pioneer Genentech Inc. in South San Francisco.

``The IT is still important to the Bay Area, but diversity allows the economy to be less subjective to some external shock,'' Matsuda said.

Leading this diversity is the East Bay, which economists agree is one of the driving forces behind a healthy outlook for the Bay Area.

In the Oakland area, which covers Alameda and Contra Costa counties, the professional and business services sector has been projected to see an average of 2.6 percent job growth between 2006 and 2008, according to the University of the Pacific's Business Forecasting Center.

Not surprisingly, with housing still being a dominant force in the Bay Area, the construction sector is projected to grow 2.8 percent per year in the East Bay through 2008.

``Whether it's per capita income, average wages and job growth, the Oakland area is in the top two or three of many of the major categories we look at,'' said Sean Snaith, director of the Business Forecasting Center.

Oakland-area employers are forecasted to boost payrolls by 21,000 jobs in 2006, a 2 percent gain from last year, according to research firm Marcus & Millichap.

Likewise, the South Bay and Peninsula have seen their share of diversity, even though the high-tech industry still leads the way. Other sectors here that the Business Forecasting Center says will grow include construction, the state and local government, financial activities and transportation and utilities.

Perhaps even more than the rest of the Bay Area, the area needs a shot in the arm in the way of encouraging numbers, no matter how modest they are.

That will come in job growth, which the Business Forecasting Center expects to gain an average rate of 0.5 percent each year through 2008.

``That area really took a devastating blow, so just seeing any kind of decent job growth is encouraging,'' Snaith said.

Biotech continues to mature

The area that continues to mature considerably is biotech. The Bay Area, which once was home to just a handful of biotech companies, now has more than 500.

The founder of biotechnology, Genentech, continues to be the giant in this sector. The 30-year-old company has a market value of about $86 billion, 12 marketed products and a goal of being the No. 1 U.S. cancer company in sales by 2010.

However, possibly just as significant as Genentech's success, is the fact that the Bay Area is set up to attract other biotechnology companies.

In February, Advanced Cell Technology became the first stem cell research firm to relocate its headquarters to California since voters passed the stem cell research initiative, Prop. 71, in 2004. It moved to Alameda.

``We came here from Massachusetts because it allows us to be in an environment that we really believe will be the center or hub of this industry segment for the next 10 years,'' Chief Executive William Caldwell said.

Still, biotech in the Bay Area is still in its infancy and has yet to reach high-tech's economic significance, Thornberg said.

``I'm not saying that biotech isn't very important, because it is,'' Thornberg said. ``It's just that I've never been a big fan of biotech as much as information technology, because while biotech affects the health care part of the economy, IT is an area that helps every area of the economy."

Even though the high-tech industry has lost some of its luster, it still has considerable strength. Many of the Fortune 500 companies headquartered in the Bay Area are still high-tech related.

A strong sign of continued strength in technology, Matsuda said, is that the number of new orders these companies are getting for computers and electronics has been strong in the first quarter of 2006.

Housing at center stage

So now, the Bay Area's economy sits on the fringe.

Will it bust through and really take charge the rest of this year and in the future? Or is momentum going to be slow?

The answer revolves around one central issue, the cornerstone of the Bay Area economy: housing. If housing has more influence over the economy than anticipated, then a flattening or a dip in housing prices could hurt the Bay Area.

But, if the supporting cast of economic factors is strong enough to sustain a cooling housing market, then it could be a softer landing.

The answer is debated heavily from one economist to another.

``In 2005, the amount of new housing equity wealth was a half a trillion dollars, which made up 45 percent of the total income in the state,'' Thornberg said. ``When you go from that to zero dollars of new wealth in 2007, the question, is will it sink the economy?''