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Recovery underway, finds business forecast

POSTED November 16, 2012 3:22 p.m.

The voices of naysayers, arguing that the nation is still mired in a Great Recession, are quieting.

And for good reason, according to Göyçe Soydemir, Foster Farms Endowed Professor of Business Economics at California State University, Stanislaus – the country and region's ongoing economic recovery is now undeniable, and expected to improve even more in the years to come.

"A lot of pessimistic people (say we are in a recession), I don't know why,” Soydemir said. “It's fashionable to do so these days. But, finally, consumers are believing we are in a recovery."

The economy has continued to grow at a gradual pace in 2012, according to Soydemir's 2013 Business Forecast Report San Joaquin Valley, the second economic forecasting report he has undertaken since his 2011 appointment.

That gradual economic growth will continue into 2013, and accelerate into 2014, according to Soydemir. He calls for the natural rate of unemployment to be reached in 2014 – 5.56 percent nationally, and between 11.5 and 12 percent in the Valley.

Some residents may look around at still-vacant storefronts and jobless friends, refusing to believe a recovery is underway. But Soydemir described the Great Recession as a car crash, a serious, traumatic event.

“You don't recover from that in two months,” Soydemir said. “It's going to take a while.”

Though the economy is still below pre-recession highs, year-over-year growth trends are on track with pre-recession statistics, and beating long-term averages.

The Valley posted an average of 2.08 percent employment growth in the first eight months of 2012 – more than double the historical long run rate of .8 percent. San Joaquin and Kings counties posted the strongest growth, up 4.38 and 4.18 percents respectively, while Madera County was the only county to continue to lose jobs, down 0.2 percent.

Valley employment is growing faster than statewide employment, up less than 2 percent for the same period. That local job growth can be attributed to low-cost land, labor, and capitol in the region, per Soydemir's report.

All Valley job sectors grew in 2012 with the exception of Government, down 1.7 percent. But even government job loss is expected to rebound in 2013, a roughly flat year, and in 2014, when employment may grow .5 percent.

Education and health services employment has consistently posted 2 percent gains, with similar gains expected in the next two years. Trade, transportation, and utilities employment grew 2.15 percent in 2012, with 2.3 and 2.8 percent growth forecast for 2013 and 2014. Retail trade posted similar results – 2.2 percent in 2012, with forecasts of 2.8 percent in 2013 and 3.0 percent in 2014.

Leisure and hospitality services employment beat Soydemir's projections, up 1.5 percent in 2012 after a 2011 growth of 0.3 percent. Growth is expected to continue, 1.7 percent and 2.0 percent, respectively, in the next two years.

Manufacturing was among the hardest hit sectors by the recession, but posted a strong, 4.9 percent rebound in 2012. The sector is expected to grow more in 2013, 5.1 percent, and in 2014, 5.3 percent.

Construction employment has also continued a strong rebound, up 13.4 percent in 2012. Growth is expected to quicken as the housing stock is depleted, to 17.4 percent in 2013 and 19.7 percent in 2014.

Single family building permits posted a strong recovery in 2012, up 16.4 percent after falling 1.2 percent in 2011. Permit growth is expected to slow slightly in 2013, up 12 percent, and 2014, up 15 percent.

And housing values are recovering, with Soydemir forecasting the first yearly increase in housing values since 2006 for 2013, a 3.67 percent increase. Values will grow more in 2014, he forecasts, up 5.83 percent.

Soydemir delivered his report at a Economic Forecasting Summit, held at CSU Stanislaus on Tuesday.

The forecast includes data through September 2012, and forecasts economic trends through 2014. The projections are based on a Bayesian vector model, developed by Soydemir, which emphasizes forecasting economic turning points. 

“We don't concern ourselves with what is going to happen in 10 years,” Soydemir said. “This is a short-term and medium-term forecast.”

Stanislaus County needs to help the economic recovery, according to Supervisor Vito Chiesa.

But the county's options are limited, with only $140 million of discretionary revenue, down from $180 million four years ago.

“That's been a very precipitous drop,” Chiesa said.

But property tax revenues have stabilized, and county forecasters expect a 7 percent increase in sales tax revenues, at the minimum.

The return of revenues will help the county face challenges like chronic unemployment, a 20 percent high school dropout rate, and illiteracy rates which surpass 30 percent in some areas. Expanded workforce training is essential, Chiesa said, to ensure the county is prepared to staff businesses which open their doors.

Chiesa lobbied for an expanded transportation system, including three new east-west corridors to better connect the county – and make it more attractive to businesses, which need to transport goods via major highways. But Chiesa acknowledged that projects of that magnitude will likely require county residents to agree to a roads tax, as state funding has dried up.

Chiesa said the county must focus on its strength – agriculture. By expanding on ancillary, value-added businesses, like food packaging and safety, the county economy could see a significant improvement.

“Brighter days are definitely ahead,” Chiesa said.

Joe Sheley, interim president of CSU Stanislaus, hopes that's the case. Since taking the university's helm this summer, Sheley said the economy has been, effectively, all he's talked about.

The university relies upon its local businesses and residents to sponsor programs, to send students to college, and, of course, create tax revenues which fund its existence.

“As this area goes, so goes our university,” Sheley said.

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