"Lots of my friends have been laid off," Peter Raulwing, a project manager for Microsoft Corp, said during lunch at a Starbucks in Palo Alto, California. "I absolutely watch what I spend. I feel lucky I've survived, but you never really know."

He has reason for concern. Global spending on computers and software will slide 8 percent next year in the U. S., Western Europe and Japan, according to Goldman Sachs Group Inc. With a 7 percent unemployment rate, Silicon Valley has about 4,000 fewer jobs today than this time last year, the Center for the Continuing Study of the California Economy said last week.

"The recession finally reached Silicon Valley," Stephen Levy, the Palo Alto-based research organization's director, said in an interview. The center based its conclusions on government unemployment data.

Technology companies with headquarters in Silicon Valley - a corridor of office parks stretching between San Francisco and San Jose - have announced at least 38,000 job cuts since September. Hewlett-Packard Co, Yahoo Inc, Adobe Systems Inc, Sun Microsystems Inc and Palm Inc are among the firms paring their workforces.

More pain

The region will probably feel more pain starting next month, said Madeline McMenamin, a senior consultant for workforce consulting firm Watson Wyatt Worldwide Inc.

"People are finishing their forecasts and budgets for the next year, and those will reflect continued downsizing," McMenamin said in an interview from Santa Clara, California. "We need to brace for tough times."

Raulwing said he's put off buying a 42-inch flat-screen television, has postponed vacations, and is dining out less to save money.

"It feels more scary," said Lutz Haentzschel, a software developer sitting with his laptop at a coffee shop in Palo Alto. He moved to the Bay Area 17 years ago and works for Siemens AG, Europe's largest engineering company. "I'm waiting for my shares to recover."

Tighter credit and slumping home prices mean Stephen Johnston can't get the refinancing he needs to consolidate his loans and save on taxes.

A software engineer at Microsoft, Johnston and his wife own a house in Fremont and another in Hayward - across the San Francisco Bay from his Palo Alto office. Johnston said he went further into debt with an eight-month remodel of their Fremont home. To save US$4,000 a year on gas and bridge tolls, the two-car family now drives only one, increasing Johnston's commute time to two-and-a-half hours.