The San Joaquin Valley economy is gradually recovering in 2011, with indicators pointing to a stronger-yet 2012, according to the first-ever Business Forecast Report from California State University, Stanislaus.

“The good news is opposed to the general perception that the Valley counties' economy is really terrible or bad, that's not the case,” said CSU Stanislaus President Hamid Shirvani. “The data says that they're doing reasonably okay.”

Though some segments of the Valley economy – financial services, durable goods, retail trade, and construction – continue to perform below the 10-year average, other industries – transportation and utilities, wholesale trade, non-durables, manufacturing, education and health – are showing gains on-par with or better than pre-recession standards.

Overall, the Valley's employment rate declined .42 percent in 2011, driven by those few hard-hit sectors, while a .43 percent increase is projected for 2012. In all, the San Joaquin Valley employment rate has outperformed the statewide average for the past 10 years. And the gap between the available workforce and available jobs is shrinking, the report says.

The disconnect between perception and reality, according to the report, comes from the high number of unemployed unskilled laborers and the ongoing foreclosure crisis.

But the housing industry's ongoing recovery from the bubble is – by and large – independent of most economic indicators. Until all the excess housing inventory is sold, little can be done to spur construction jobs and home values.

Even then, home values are expected to recover gradually, at a rate consistent with pre-boom increases of a percent or two per year.

And, while the Valley sees high unemployment rates, demand for skilled laborers in industries such as higher education, health care, and engineering are surging, per the report. The fall of the unskilled-labor heavy housing boom and the shifting nature of the economy has seen the region's unemployment rate self-correct to a more normal unemployment rate, according to CSU Stanislaus Foster Farms Endowed Professor of Business Gökçe Soydemir, who drafted the report.

Though the current, 14.8 percent unemployment rate may be more than double the pre-recession 7 percent unemployment rate locally, it's relatively close to the region's natural unemployment rate of between 11.4 percent and 11.8 percent. The numbers show that a return to the artificially-low unemployment rate of the mid-2000s to be unlikely.

“That's not a realistic question,” Soydemir said. “During the pre-recession, we had a boom.”

The only way to return to such a figure would be to have another boom, Soydemir said. That boom-bust cycle isn't the way to build a successful economy for the long term, he said.

“That cycle – boom, crisis, adjustment – can have very detrimental social consequences,” Soydemir said. “We want slow, steady improvement that will not cause devastating consequences at the end.”

The reconfiguring of the local economy, putting a newfound emphasis on long term, high education jobs in higher education, health, and engineering, is part of a needed diversification of the area's jobs, Soydemir said. But the time needed to retrain workers to hold those new positions may be driving the slow recovery of unemployment figures.

Also slowing the recovery is banks' hesitance to start lending – despite record-high quantities of cash on hand. Normally, economists expect banks to use their funding to engage in loans and leases, but due to new laws making loan-issuing more difficult and general uneasiness following the housing collapse, banks have failed to do so. Though local bank deposits were up 3.58 percent in 2010, and a further 2.00 percent growth projected in 2011, loans and leases were down 4.5 percent in 2010, and a further 5.8 percent in 2011.

Once banks begin lending again, then the economic recovery will fall on the backs of local businesses and citizens.

“Banks have to start extending loans again,” Soydemir said. “Consumers have to start spending. Employers have to start employing.”

By behaving as though the economy is recovering, Soydemir said, the economy will only recover faster. And there's no reason to behave otherwise, he said, with so many indicators pointing toward an imminent recovery in 2012.

“The train is coming,” Soydemir said. “We are waiting at the station. It's on its way”

To contact Alex Cantatore, e-mail acantatore@turlockjournal.com or call 634-9141 ext. 2005