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Business forecast strong, despite negative impact of drought

Business forecast strong, despite negative impact of drought

Recent growth in the construction industry is helping to offset negative effects of the drought on the overall economy of the region, according to the business forecast.


POSTED May 22, 2015 7:39 p.m.

Twice a year California State University, Stanislaus produces a San Joaquin Valley Business Forecast, the results of which were released this month. While the numbers are not significantly different than they were six months ago, there is one factor looming over the report: the drought.

California's ongoing historic drought, which has prompted mandatory conservation measures statewide and an executive order from the governor, has taken a toll on the agriculture sector. Some farmers have been forced to let fields fallow and negotiations over water storage are taking place at both the local and state levels. Employment in agriculture related industries, such as manufacturing, have also remained stagnant states the report. 

However, according to CSUS Foster Farms Endowed Professor of Business Economics and report contributor Gokce Soydemir, the overall numbers are better than he predicted. This is due in part to other non-farm related industries' growth which has mitigated the drought's influence on the regional economy overall. 

"There is no doubt that this is an agricultural area. You want to have a strong agricultural base, but you also want to diversify your industries so that when an external shock hits you're resilient to that," explained Soydemir. 

A shock constitutes anything that could negatively influence supply, such as a hurricane that could affect the construction or housing industries in certain areas of the country, or the drought in California. 

Industries that have mitigated the influence of this shock have been the leisure, hospitality and construction industries, which are the fastest growing in the San Joaquin Valley. As far as local development, the continual southward expansion of Monte Vista Crossings in Turlock has helped. Soydemir stated that recent growth in the construction industry is incremental and balanced which is ideal, compared to the exponential growth that created an unsustainable bubble prior to the recession. 

One other surprising area of growth? The information industry.

"For the first time since the recession, information employment began posting two to three percent annual growth, significantly above the negative 10 year benchmark rate, and is projected to grow even further, thus ending its categorization as a suffering sector in the Valley," states the report.

This industry's growth could be attributed to the computerization of health records, the influence of the Affordable Care Act, as well as an increase in government employment said Soydemir.

Looking forward, retail trade employment will likely continue to help mitigate the impact on farm-related areas as projections indicate a 2.8 percent average yearly growth in 2016 and 2017. 

While these industries' growth have helped offset the overall strain the drought has  predominantly posed on the agriculture and manufacturing industries, indirect ripple effects could eventually take shape in non-farm related areas. This is something the contributors will keep an eye on said Soydemir, who noted that the delayed influence of the drought in these areas is itself indicative of a strong regional economy

"It shows how resilient the Valley economy is," said Soydemir. 

 

 

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