San Joaquin Valley’s economy to face ‘serious slowing’ in coming months, forecast says
The San Joaquin Valley’s economy faces “serious slowing in the coming months,” a new analysis of the valley’s prospects says.
And that’s a forecast that doesn’t take into account any potential upheavals should the federal government hit its debt ceiling next week.
The latest business forecast from California State University, Stanislaus, for the Valley does not take the debt limit battle into account.
Despite the Washington impasse, most economists are cautiously hopeful that an agreement to raise or suspend the ceiling will be reached before the Treasury is unable to meet its financial obligations.
Moody’s Analytics, a nonpartisan economic research firm, last week said there was a 10% possibility of a debt limit breach.
“If there is a breach,” the analysts said, “it is much more likely to be a short one than a prolonged one. But even a lengthy standoff no longer has a zero probability. What once seemed unimaginable now seems a real threat.”
The Valley is likely to be hit with the same trends that are expected to slow the national economy, whether or not there’s a breach.
If there were a debt limit breach, “The magnitude of change would naturally be much greater,” said Gokce Soydemir, Foster Farms endowed professor of business economics at Stanislaus State.
He explained that a forecast has two components: direction of change and the magnitude of change.
“The direction of change is more important than the magnitude of change,” Soydemir said, and debt breach or not, the direction of change would be the same.
Consumers and jobs
The forecast, which assumes no breach, nonetheless sees a local economic decline. Triggering much of the anticipated downtown is the rise in interest rates.
The Federal Reserve has increased rates 10 times in the last 14 months. Though the Fed has indicated it may pause further hikes, the impact of its recent action is reverberating through the economy.
“Labor markets have begun to respond to the rate hikes, and unemployment rates have been increasing since the first quarter of 2023, adding to the worries of a hard landing,” the Stanislaus State report said. A hard landing means greater economic pain.
Consumers are already feeling some of that pain. With unemployment growing and interest rates rising, Valley consumers’ purchasing power dropped last year.
“This loss in purchasing power is expected to continue in the coming months,” the Stanislaus State forecast said.
Things could become worse if rates don’t drop, the analysis warns.
“Gradually rising unemployment rates are just a few of the indicators of this slowdown if rates are not cut by year end,” it says.
The Valley could be hurt worse than national averages because it relies more heavily on unskilled labor.
“Certain categories of employment such as retail trade, mainly comprised of unskilled workers and thus most vulnerable, are already reporting declines in employment sooner than other categories,” the forecast says. The other major source of unskilled labor, the leisure and hospitality industries, should see slight growth this year and early next year.
Overall, the forecast sees a slight decline in total employment through the first half of next year before the numbers start going up again.
One bright spot: “Employment levels in the education and health services sectors are projected to exceed 255,000 by the end of the first half of 2025. This employment category is considered robust compared to other categories and is less likely to be affected by economic downturns.”
Underlying the more grim employment news is that consumers’ purchasing power has been declining and appears likely to continue doing so.
Wages in the Valley were up 3.46% last year, but because the rate of inflation was higher, purchasing power dropped 4.54%, which is the biggest drop in 21 years.
Even though the current rate of inflation has dropped to about 5%, weekly wages are still unlikely to keep up, the forecast says, as they increase by an average of 3.27%.
This story was originally published May 23, 2023 at 5:00 AM.
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