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Valley Business Forecast: Rising wages, employment rates to end in 2017

POSTED May 4, 2017 7:35 p.m.

The newly released San Joaquin Valley Business Forecast Report finds that Stanislaus County, and the entire Valley, had a banner year in 2016 — however, that trend is likely to end in 2017.

The third quarter of 2016 saw the biggest increase in average weekly wages recorded for the San Joaquin Valley since 2001. Along with higher wages, Stanislaus County recorded the second-fastest growth in total employment in 2016 (after Madera County) and was one of only two counties in the region that grew faster in 2016 than 2015.

Most of these promising wage and employment gains will not be carried into 2017, however, according to Gökçe Soydemir, the Foster Farms Endowed Professor of Business Economics at Stanislaus State and lead author of the Business Forecast Report.

“Higher unemployment rates from the recent and scheduled interest rate hikes of the Federal Reserve, together with balance sheet reduction, will have a disproportionate impact on the Valley economy because the Valley has a greater number of low-income families and disadvantaged business enterprises,” states the report.

Employment growth in the Valley was consistently ahead of labor force growth from 2012 through the first half of 2016, but then the trend turned. The Valley’s streak of growth in all employment categories ended in the second half of 2016, with a “surprising” decline in information employment. The report also finds that due to uncertainty surrounding the replacement of the Affordable Care Act, many hospitals and health care centers laid off workers or put off hiring plans.

While there was basically no growth in Valley manufacturing employment in 2016, the report forecasts that recent rain and expected easing of some regulations on the part of the new administration will see marginal improvement in this category beginning in the second half of 2017 and carry through 2019.

Another positive forecast for 2017 includes retail trade employment. The benchmark growth rate in retails trade employment stands at 1.35 percent, making 2016’s rate of 4.32 percent more than three times the benchmark. Despite the elastic response of retail trade employment to rate hikes, growth in this category of employment is expected to continue to surpass the benchmark rate, according to Soydemir.

According to Soydemir’s report, the Valley can anticipate an average yearly growth of 1.49 percent total employment over the next two years. The end of the drought and the anticipated easing of some farm regulation will ease some concerns, allowing a growth rate higher than the Valley’s long-term 1.25 percent.

The Valley’s average home price grew by 6.56 percent in 2016, virtually the same as 2015’s 6.68 percent increase. The highest yearly increases in home prices, however, were seen in Modesto at 8.49 percent, followed by Stockton at 8.30 percent. In Merced, home prices increased by 7.27 percent. Home prices increased the least in Bakersfield at 3.18 percent and in Fresno at 5.13 percent.

Valley home values are projected to increase at an average annual rate of 5.40 percent from the second half of 2017 to the first half of 2019. The Fed’s continuation of rate hikes should slow the increase in 2017 and beyond.

The growth in the number of home building permits slowed to 12.39 percent in 2016 after a 2015 growth rate of 16.23 percent. That growth is projected to fall by another 4 percent from the second half of 2017 to the first half of 2018 and another 2 percent after that.

Other highlights of the report:

— After hitting an all-time high in value against other currencies during the second half of 2016, the dollar began depreciating recently and should depreciate further given the current administration’s emphasis on a weak dollar to boost exports. A weaker dollar helps farmers move their product into foreign markets, but Valley consumers will see a decrease in purchasing power.

— Foreclosure starts, which dropped to all-time lows in 2016, will climb in response to the Fed rate hikes. Bank deposits, net loans and leases in the Valley rose at a slower pace in 2016 than 2015, but the Fed hikes will increase margins and lead to greater profitability in Valley banks.

The complete San Joaquin Valley Business Forecast Report can be found at: https://www.csustan.edu/sjvbfr

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