CVV News l May 15, 2023
During the first quarter of 2023, several indicators — including regional bank runs, short-term rates not seen at this level since 2007, gradually rising unemployment rates and low demand for mortgages — signal a significant slowing in the Central Valley’s overall economic activity if there is no rate cut by the end of the year.
Given the economic landscape that lies ahead, as summarized in the sections below, it is increasingly important for Valley businesses and consumers to consider:
- Deleveraging by reducing debt,
- Be overweight in cash,
- Purchase bonds if investment is an option,
- Switch from flexible interest rates to fixed,
- Rent instead of purchasing a home,
- If laid off, consider going to school to increase skills by obtaining student loans, and
- Take advantage of introductory credit cards that offer no interest charges for 18 months or longer.
This is the outlook for the coming year according to the biannual San Joaquin Valley Business Forecast produced by Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State.
Employment Indicators
Total employment grew for all counties in 2022 at rates much faster than their sample averages. However, labor markets have begun to respond to the federal interest rate hikes, and unemployment rates have been gradually increasing since the first quarter of 2023, adding to the worries of a hard landing. Valley total employment is likely to decline in 2023, only to display some growth in 2024.
Housing Sector
Housing permits rose by 12.30 percent in 2022, following a 35.65 percent rise in 2021. Home values increased exponentially, and the average yearly increase in 2022 was 21.65 percent, bringing worries of a housing market bubble. Any pullback will not likely be to the degree seen in the 2008 recession, simply because lenders were stricter in 2022 than the prior year. The double-digit increases seen in 2022 and 2021 are not sustainable, and a correction back to the rates more in line with benchmark growth rates is expected.
Inflation and Prices
Inflation is coming down but at a much slower speed than preferred by the Federal Reserve, mainly because the main driver of inflation is the price of oil. OPEC’s decision in April to cut output will likely prolong inflation. Valley average weekly wages rose about 5 percent less than the inflation rate in 2022. Thus, there was a significant fall in purchasing power of the Valley consumer in 2022. This loss in purchasing power is expected to continue in the coming months.
Banking and Capital Markets
For the first time since the forecast has tracked banking indicators, there was a change in the dynamics of bank total deposits and net loans in Valley community banks in 2022. Typically, net loans and total deposits grow at roughly the same rate. However, in 2022, net loans grew at a much slower pace compared to total deposits. Valley community bank assets in nonaccrual began trending upward much more steeply in 2022 and are more likely to increase further with the gradual increases in the unemployment rate. Valley total bank deposits rose by 8.67 percent in 2022, which was about half the rate seen in 2020 and 2021.
About the Report and Author
Gökçe Soydemir’s biannual Business Forecast provides projections for the Valley’s labor market, regional housing conditions, prices and inflation, banks and other depositary institutions and capital markets. Soydemir and his team use a unique forecasting model that produces lower and upper statistical confidence bands with results that are expected to fall within this range. Soydemir joined Stanislaus State as the Foster Farms endowed professor of business economics in 2011. He brings strong expertise and experience in business analysis and forecasting and has published extensively on applied econometrics, regional economics, financial forecasting, market analysis and international finance.
Soydemir: Rising rates likely to have disproportionate effect on San Joaquin Valley Economy
Dr. Gökçe Soydemir l January 13, 2023
After registering real gross domestic product negative growth during the first and second quarters of 2022, the Valley economy officially entered a recession.
While the labor market is tight and unemployment rates are gradually rising, there are increased concerns that rate hikes by the Federal Reserve to bring down inflation will steer the economy into a hard landing.
That is the outlook for the coming year according to the biannual San Joaquin Valley Business Forecast produced by Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State.
Here are some of the report’s highlights:
EMPLOYMENT
All employment categories except for financial activities grew in 2022, and total employment in all counties grew at rates significantly higher than their respective long-term benchmark growth rates. Valley total employment is likely to decline in 2023 but will display some growth in 2024.
REAL ESTATE
The most concerning indicator to watch is the 30-year fixed interest rate, which began to display the steepest increase ever seen in the series. In 2022, housing permits rose 18.92 percent, and home values increased 21.46 percent, bringing back worries of a housing market bubble. The double-digit increases in home values seen in 2022 and 2021 do not appear to be sustainable, and a correction back to rates more in line with benchmark growth rates is expected.
PRICES AND INFLATION
During 2022, the average rate of inflation stood at 8.29 percent while average weekly wages rose 3.28 percent, resulting in a fall in real wages and a remarkable loss of purchasing power that is expected to continue in the coming months. Other factors putting upward pressure on overall price levels are the ongoing Ukraine-Russia war and unresolved supply chain issues. Although inflation is likely to decline at very gradual rates, a fall to the Federal Reserve’s target rate of 2 percent is not likely to occur in the very near future.
BANKING AND CAPITAL MARKETS
There was a clear change in the dynamics of the Valley’s community bank total deposits and net loans. Valley total bank deposits rose 9.57 percent in 2022 — about half the rate seen in 2020 and 2021. There was no additional growth whatsoever in Valley net loans and leases, reflecting the stricter stance of community banks in extending loans. Valley community bank assets in non accrual began trending more steeply in 2022 than in 2021 and are more likely to increase if the unemployment rates continue to rise. Community bank assets in default 30 to 89 days and assets in default 90-plus days displayed a steeper increase in 2022 than previous years.
ABOUT THE REPORT AND THE AUTHOR
Gökçe Soydemir’s biannual Business Forecast provides projections for the Valley’s labor market, regional housing conditions, prices and inflation, banks and other depositary institutions and capital markets. Soydemir and his team use a unique forecasting model that produces lower and upper statistical confidence bands with results that are expected to fall within this range. Soydemir joined Stanislaus State as the Foster Farms endowed professor of business economics in 2011. He brings strong expertise and experience in business analysis and forecasting and has published extensively on applied econometrics, regional economics, financial forecasting, market analysis and international finance.
More than Two-Thirds Expect Bad Economic Times for California in the Next Year
CVV News l November 2022
MORE THAN HALF REPORT REDUCED DRIVING DUE TO HIGHER GAS PRICES; MAJORITIES ACROSS PARTIES FAVOR POLICIES THAT WOULD INCREASE HOUSING AFFORDABILITY
SAN FRANCISCO, November 9, 2022—Amid rising consumer prices and considerable economic uncertainty, more than two in three Californians are pessimistic about how the state’s economy will do over the next year. Meanwhile, a majority of Californians say that at least one member of their household has driven less in the last 12 months due to the cost of gasoline. Strong majorities of Californians—including majorities across partisan groups—favor government policies that would increase the amount of affordable housing in the state. These are among the key findings of a statewide survey released today by the Public Policy Institute of California.
Asked if they think California will have good or bad economic times during the next 12 months, 69 percent of adults (and 71% of likely voters) say bad times. This is up 12 percentage points from April 2022 and 17 percentage points from last November. Today, solid majorities across regions expect bad economic times in the next year (75% Central Valley, 73% Orange/San Diego, 71% San Francisco Bay Area, 66% Inland Empire, 60% Los Angeles).
Seventy-nine percent of both adults and likely voters say that the availability of well-paying jobs in their part of California today is either a big problem (24% adults, 22% likely voters) or somewhat of a problem (55% adults, 57% likely voters). Twenty-three percent of adults (and 24% of likely voters) say that the lack of well-paying jobs is making them or their family seriously consider leaving California.
“Most Californians are predicting bad times for the state economy in the next 12 months,” said Mark Baldassare, PPIC president and CEO. “One in four Californians say the lack of well-paying jobs is making them seriously consider moving out of the state.”
The new statewide survey also finds:
- Most Californians say at least one person in their household is driving less due to gas prices, while one-third report cutting back on food to save money. Fifty-seven percent of Californians (and 58% of likely voters) say that someone in their household has driven less in the last 12 months due to the cost of gasoline. At least half across income groups report reduced driving in their household, including two-thirds (67%) of those with annual household incomes of less than $20,000 (61% $20,000 to $39,999; 66% $40,000 to $79,999; 50% $80,000 or above). Thirty-three percent of Californians (and 30% of likely voters) say that someone in their household has reduced meals or cut back on food in order to save money. Those in households with annual incomes of less than $20,000 (56%) and $20,000 to $39,999 (50%) are more likely to say this than are higher-income Californians (39% $40,000 to $79,999; 22% $80,000 or above). “Half or more Californians across income groups report having driven less due to the cost of gasoline in the last 12 months,” Baldassare said. “One-third report having reduced meals or cut back on food to save money, including half or more among lower-income residents.”
- Many Californians worry about the cost of gasoline and other transportation costs. Among lower-income households, more than four in ten worry every day or almost every day about covering their bills. More than four in ten Californians worry every day (24%) or almost every day (19%) about the cost of gasoline and other transportation costs (likely voters: 26% every day, 17% almost every day). Half of those with annual household incomes of less than $40,000 worry about transportation costs every day (34%) or almost every day (16%). In addition, 40 percent with incomes of less than $40,000 worry either every day (24%) or almost every day (16%) about paying their bills. Among the lowest-income Californians (annual household income of less than $20,000), 29 percent worry every day and 17 percent worry almost every day about paying their bills.“Forty-three percent of Californians and half with lower incomes worry every day or almost every day about affording gasoline and other transportation costs,” Baldassare said. “More than a third with lower incomes worry every day or almost every day about paying their bills.”
- An overwhelming majority of employed Californians are at least somewhat satisfied with their jobs, though this share is lower among lower-income residents. Nine in ten employed adults are either very satisfied (36%) or somewhat satisfied (55%) with their jobs, and eight in ten (81%) say they have at least a fair amount of job security. Workers with annual household incomes of less than $20,000 are considerably less likely to be satisfied with their jobs (27% very satisfied, 49% somewhat satisfied) and to have at least a fair amount of job security (53%).Majorities of employed Californians say their jobs offer opportunities for growth and advancement (58%) and educational or training assistance (51%). Those with higher annual household incomes are more likely to report opportunities for growth and advancement on the job (45% less than $40,000; 51% $40,000 to $79,999; 64% $80,000 or above); the same is true vis-à-vis access to educational or training assistance (32% less than $40,000; 45% $40,000 to $79,999; 60% $80,000 or above).“Most employed residents are somewhat satisfied with their jobs and have at least a fair amount of job security. And majorities say their job offers advancement opportunities and educational or training assistance,” Baldassare said. “However, lower-income workers are less satisfied with their jobs and have less access to advancement opportunities and education and training assistance.”
- Most Californians, including majorities across party lines, approve of government policies to increase housing affordability. Strong majorities of adults (73%) and likely voters (68%) favor government policies that would ease permit requirements and allow more housing to be built so that more lower- and middle-income Californians can afford a home. This includes majorities across partisan groups (80% Democrats, 70% independents, 56% Republicans). Overwhelming majorities (76% adults, 71% likely voters) approve of government policies to increase the supply of affordable rental housing for lower- and middle-income Californians, including majorities across party lines (86% Democrats, 73% independents, 52% Republicans).“Strong majorities of Californians favor government policies to increase housing production, so that more lower- and middle-income Californians can afford to purchase homes, and to increase the amount of affordable rental housing,” Baldassare said.
- Majorities of Californians want the state government to do more to address economic inequality. Overwhelming majorities of Californians (71% adults, 76% likely voters) think the gap between the rich and the poor is growing, including majorities across party lines (78% independents, 76% Democrats, 64% Republicans). Strong majorities (71% adults, 64% likely voters) say the state government should be doing more to address this divide. Democrats (83%) are much more likely than independents (69%) and Republicans (45%) to hold this view. “Seven in ten Californians say the gap between the rich and the poor is getting larger and that the state government should do more to narrow this divide,” Baldassare said.
California, Federal Gov’t Set Policies, Programs to Arrest Inflation
By Antonio Ray Harvey | California Black Media
June 12, 2022
As the costs of goods surge nationwide along with gas prices, Gov. Gavin Newsom is committing $18.1 billion in “inflation relief” to Californians through the California Blueprint, his mid-year revised budget proposal.
The White House is also taking steps to ease the pinch from inflation Americans across the country are experiencing.
“Global inflation, the war in Ukraine driving up costs, climate change impacts – everyone is feeling the weight. So, we’re putting $18.1 billion on the table to help lower costs for Californians – tax refunds, [money] for healthcare, rent, utility bills, public transit [and] more,” Newsom tweeted.
California’s economy is the largest in the United States and is currently experiencing a budget surplus of close to $100 billion, according to the governor’s office.
“Backed by a robust surplus and grounded in our unshakable values, we’re paving the California Way forward to prosperity and progress for all,” said Newsom recently, referring to investments the state is making in financial relief efforts, including an increase to the minimum wage, rental and utility bill assistance, tax refunds, health care subsidies, and more.
As Newsom and federal government officials announce relief packages to tackle inflation, they are taking the opportunity to criticize their colleagues across the aisle.
“While gridlock persists in Congress and Right-wing fanatics turn statehouses across the country into laboratories of hate and oppression, here in California, we’re putting in the work to grow our economy and implement real, inclusive policy change to create a brighter future for all,” said Newsom.
President Joe Biden also urged Republicans in Congress to cooperate with Democrats on their inflation efforts.
“I encourage Congressional Republicans to join us in our efforts to lower prices for families across the country, by making more in America, strengthening our supply chains, and cutting energy and prescription drug costs,” Biden tweeted recently.
The federal government’s plan for offsetting the impact of inflation includes giving Medicare the power to negotiate prices for prescription drugs and bringing food prices down in grocery stores by “bringing more competition to those markets,” according to Sameera Fazili, Director of the White House National Economic Council.
Fazili told California Black Media (CBM) about some of the unique challenges facing communities of color as the prices of goods and services skyrocket nationwide.
One such challenge is childcare, which is essential for many parents of color as they are less likely to work remotely.
“Often times, the amount that you spend on childcare may be as much as what you bring in from going to work,” said Fazili.
The White House has also received commitments from large internet providers to lower the cost of internet access for lower income households. such as Verizon, for example, has committed to dropping monthly payments for highspeed service by $10.
Housing is another challenge for Black Americans, Fazili told CBM.
“We don’t have enough affordable housing in this country,” said Fazili.
Fazili said the federal government cannot directly lower or raise the price of gas because gas is traded on the global market.
United States Secretary of Energy Jennifer Granholm told CBM that the increases in gas prices are due, in part, to U.S. sanctions on Russian oil because of the country’s invasion of Ukraine.
Granholm says since the European Union is following the U.S. with sanctions on Russia, there might be additional challenges around the corner.
“We’re going to see more volatility, more increase,” said Granholm.
To combat this, the federal government plans to tap into the U.S. Strategic Petroleum Reserve in the Biden administration is implementing take effect.