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Economic recovery on its way, finds report

POSTED September 4, 2012 11:08 p.m.

California’s economic recovery is on the horizon though challenges remain numerous, according to a new report from the Business Forecasting Center at the University of the Pacific.

“While the U.S. recovery is wobbling, the California recovery is continuing to make slow, steady progress, and is now marginally outperforming the national economy,” the report reads. “…Our baseline forecast is for the painfully slow recovery to continue through 2013, before accelerating slowly in 2014.”

Statewide, jobs are projected to increase at a 1.7 percent pace in 2012, and 1.8 percent each year for the next two years. By 2016, the statewide unemployment rate is expected to fall from the current 10.6 percent to 7.1 percent.

Though Stanislaus County is not projected to see employment recovery in 2012, with jobs rising just 0.3 percent, this year will mark the first year of positive job growth since the recession started. UOP analysts project 2013 will see a stronger recovery, with jobs up 2.2 percent. The current 15.2 percent unemployment could drop to 12.5 percent in 2015.

Merced County is projected to lose 0.8 percent of its jobs this year, with its recovery truly beginning with a 1.4 percent jobs gain in 2013. The county’s 16.8 percent 2012 unemployment rate is projected to fall to 14.5 percent in 2015.

San Joaquin County will lead all Central Valley counties in job growth this year, up 4.0 percent due to the growth of its port, a new correctional healthcare facility, and some recovery in the service sectors. That job growth comes despite Stockton’s municipal bankruptcy filing.

Construction jobs are projected to lead job growth over the next four years, totaling 26 percent of the state’s total non-farm job growth. Despite the addition of 285,000 new construction jobs, there will still be nearly 100,000 fewer construction jobs in 2016 than before the recession.

Much of those construction jobs will be driven by rebounding housing construction in 2013, with 38,000 single-family homes and 41,000 multifamily units projected. By 2016, single-family housing starts will hit 100,000 units, only two-thirds of the pre-recession peak.

Manufacturing employment growth is expected to be slow, increasing just 1,600 jobs in 2012. The health services and professional scientific and technical services sectors are expected to continue to exhibit strong job growth.

State and local government jobs, including schools, show less positive projections; the segment has lost 131,000 jobs since 2007, and is expected to bottom out next year before gaining 60,000 jobs by 2016.

That outlook could worsen, should voters turn down Gov. Jerry Brown’s (D) tax initiative – temporarily raising sales taxes and income taxes on high earners. If the initiative fails, education from kindergarten to college would be hit by billions of dollars in cuts.

“This is undoubtedly a political strategy since education is the most popular item in the budget,” the report reads. “But it is also a dangerous economic strategy, and profoundly bad policy for California.”

Other governmental policy decisions could also affect the economic forecast, according to the report.

Should the $68 billion high-speed rail system fail, the projections would see a slower recovery. Per the report’s analysis, the project has a good economic cost-benefit ratio, especially compared to the Bay Delta Conservation Plan. That project would add Delta tunnels which would convey extremely expensive water to San Joaquin Valley farmers, at the expense of Delta growers.

 Adding to the uncertainty is California’s cap-and-trade greenhouse gas program, which could slow economic growth in the Valley. Food processing, transportation, and agriculture are all energy-intensive, and produce greenhouse gasses.

Should any of those policy decisions have an extraordinarily detrimental effect on the economy, the recovery could slow – or stop. Though a return to recession is deemed “unlikely,” UOP forecasters suggest a 25 percent chance of a relapse.

“Unfortunately, it is a lot easier to envision recession scenarios than rapid growth scenarios for 2013,” the report reads. “However, it is important to realize these are all relatively low-probability events that could be addressed through policy, and the pace of recovery in California is beginning to outpace the U.S.”

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