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Business Forecast: Regional economy continues to slow
Merced County total employment grew 3.99%, the fastest among the San Joaquin Valley’s eight counties in 2021. Stanislaus County total employment grew the second fastest at 3.56%.

The San Joaquin Valley Business Forecast report was released this week, detailing changes in the dynamics of the Central Valley’s economy. After the economy at both the regional and national levels reached their peak in recent years, all indicators point to a further slowing of economic activity in the coming months — something the business community should prepare for now as the longest-lasting period of expansion comes to an end.

The biannual forecast is produced by Stanislaus State and provides businesses with extensive information about trends in the region relative to those in the state and nation. The report not only helps minimize uncertainty surrounding these economic indicators, but also generates market consensus on a regional basis helping businesses, investors and consumers make better-informed decisions.

Foster Farms Endowed Professor of Business Economics Gökçe Soydemir has been the lead author of the report since 2011, and said that the state of the Valley’s economy continues to slow after years of expansion following the recession. Businesses can make sure they’re prepared for the slower economy through a variety of tactics, he added.

“They can start thinking about downsizing and paying off their debts if they have any,” Soydemir said. “Other things you want to think about are what you would do if your income were to decline due to the slowing of economic activity, and there are certain measures you can take on the overhead cost side.”

The slowdown in the San Joaquin Valley’s total employment was projected in previous Business Forecasts and, for the first time since 2011, registered a month-to-month decline. This drop in employment was more apparent in 2019 than in previous years, as total employment growth came in below the average — also for the first time since 2011.

In addition to employment, the real estate market can sometimes mirror the state of the economy. While building permits in the Valley did register a 11.41 percent decline in 2019, the drop follows a significant 32.84 percent increase in 2018. A correction like this is normal, Soydemir explained.

“That’s a statistical phenomenon,” he said. “Whenever a series exceeds the average by several standard deviations, it will correct itself by reversing behavior. Last year it was very high, so for the series to report something even higher than that is not very realistic.”

Following consecutive cuts to the federal funds rate in 2019, 30-year mortgage rates fell to three-year lows. Meanwhile, the growth of home values has slowed, with a 5.75 percent average yearly increase in 2019 registering slightly above the long-term benchmark rate of 5.14 percent and trailing the growth rates evident in 2017 and 2016.

Mortgage rates can tell us a lot about the economy, Soydemir said.

“When long term borrowing rates decline, that creates an environment for home purchasing and refinancing. So, we see that it increases construction, and construction employment came up this year as the fastest growing category.”

While wages did not decline in 2019, it could happen as rising prices due to tariffs and inflation will soon outpace wage increases. While inflation tends to stay above wage growth, the added impact of tariffs is being felt in the Central Valley, Soydemir said, impacting what consumers are able to afford.

“There are winners and losers from any political change. Steel is winning, but areas like us here are losing,” Soydemir said.

The tariffs have had such an impact on the local economy that the Business Forecast added a new section to its report that focuses on the external sector. The section examines the activity at the Port of Stockton which handles shipments of goods such as cement, steel, liquid fertilizer and rice — four bulk items highly susceptible to the pressures of tariffs. The minimum requirement of observations for this series hasn’t been met yet, but future reports will include the data.

While the economy has slowed, it doesn’t necessarily mean a recession is in the future, Soydemir said. Rather, the decrease in activity signifies a drop that, for now, is normal.

“In a way it’s a self-correcting behavior. Otherwise, the economy will overheat,” he said. “It’s like if you’re running, you can only run for a short time at best until you need to slow down. The economy is like that. It needs to maintain a long-term sustainable rate of growth.”