By allowing ads to appear on this site, you support the local businesses who, in turn, support great journalism.
Business Forecast: Brighter days ahead for Valley economy
Rising interest rates, inflation could detour growth
Placeholder Image

As the recent rain has brought much-needed relief to local crops, it is also helping to paint a rosier economic picture for the Valley, according to the biannual Business Forecast Report produced by Gökçe Soydemir, the Foster Farms Endowed Professor of Business Economics at California State University, Stanislaus.

"During the drought years, the range of growth was smaller and smaller, however, employment still grew every year," said Soydemir.

Although the Valley and the state both had employment growth in 2015, California’s growth in employment continued to outpace the Valley. Employment growth in the region normally should be higher than the growth observed at the state level, according to the report, but the drought has impacted the San Joaquin Valley more heavily than other regions. Soydemir predicts that more rainy years are likely to reverse this trend.

Employment grew in all eight counties during 2015, with Fresno, San Joaquin and Stanislaus counties growing the fastest. Projections now point to a 1.58 percent average yearly growth in Valley total employment from the second half of 2017 to the first half of 2018. At this pace, total employment in the Valley is projected to exceed 1,700,000 by the second half of 2017, according to the report.

All categories of employment grew in 2015. Trade, transportation and utilities employment grew the fastest, followed by leisure and hospitality services and retail trade. Because of drought, wholesale trade employment (a farm-related category ) went from one of the fastest-growing categories to the slowest. Growth in manufacturing exceeded employment growth in the sectors of information, wholesale trade and financial services, with information and financial services employment ending years of decline. Construction employment growth continued to remain in fourth place Valley-wide.

Interest rate hikes and inflation are the two factors with the most potential to dampen employment growth rates in 2017 and 2018, according to the report.

There was good news on the housing and banking fronts. Foreclosure starts continued to fall following a temporary blip in 2015 and are projected to fall further but at a slower pace. Valley bank deposits continued to display a rising pattern in 2015 and are projected to rise further with the increase in interest rates. Deposits are projected to help the financial activities sector in terms of profitability and employment. Net loans and leases in line with bank deposits are projected to increase in 2017 and 2018.

As with most good news, however, there is also the bad — in this case, a decrease in international competitiveness of local agricultural products. Valley exports of agricultural goods were negatively impacted by appreciation of the dollar, which is likely to stay strong against other currencies given the recent change in policy by a fractious Federal Reserve that resulted in higher interest rates, according to the report.

 A strong dollar will further decrease the international competitiveness of regionally produced goods.  However, Valley consumers should enjoy slight increases in their purchasing power as a result of the strong dollar.

Consumer price index inflation continued a rising pattern that began in the last month of 2015. Inflation registered 2.2 percent in December, and 3 and 2.5 percent annually in the first two months of 2016. The last time inflation reached 3 percent, a rate above the historical annual rate of 2.33 percent, was in 2011. Inflation is a closely watched indicator for the Federal Reserve, which reversed course to a more dovish stance in early 2016.

Wages continued to outpace inflation in 2015 and are projected to climb in 2016, remaining above the rate of inflation, unless inflation exceeds an average annual rate of 4.0 percent.

Soydemir is optimistic that California's gradual minimum wage increase to $15 an hour will help keep wages above inflation.

"Wages have been stagnant for a really long time," he said.

Summarizing the economic forecast, Soydemir said the Valley economy will continue growing in 2017 and 2018, but at speeds closer to benchmark historical rates due to headwinds from global and national factors.