Sluggish Central Valley economic growth expected to break loose soon

The Central Valley’s recovery from recession should continue on a steady upward climb over the next few years, with decent job growth fueled partly by an expected surge in housing construction, economic forecasters say.

However, the University of the Pacific’s quarterly forecast did not contemplate costs if the drought continues for a fourth consecutive year. The weather picture should be more clear by its next report, due out in May.

“Consumers are confident, supported by surprisingly low gas prices, solid job growth and improving wages,” says the newly issued California & Metro Forecast, issued by the UOP Business Forecasting Center. The report declares that California “is finally fully recovered from the Great Recession” despite pockets of sluggish growth, including in the Valley.

For example, a 2013 rise in job growth took a disappointing dip in 2014, mostly because of drought and ongoing “weakness in home building,” the report says.

But most major indicators suggest an encouraging, if not vigorous, rebound for Stanislaus, San Joaquin and Merced counties in coming years:

▪ This year, Stanislaus County should experience a 3.3 percent rise in jobs, the highest rate in the Valley, and significantly more than the statewide prediction of 2.3 percent.

“Modesto is pretty well positioned to handle drought impacts, compared to areas further south in the Valley,” said Jeffrey Michael, director of the Business Forecasting Center.

▪ A healthy 3.9 percent jump in real personal income in Stanislaus is expected in 2015, to a total of $18.7 billion, followed by a steady increase to $21 billion by 2018.

▪ Although unemployment here in the Northern San Joaquin Valley remains chronically high compared with other parts of the state, rates in all three counties are expected to steadily decline through at least 2018. Stanislaus’ 11.6 percent unemployment in 2014, for example, could drop to 9.1 percent in four years, and Merced’s rate could go from 13.2 percent to 10.8 percent in the same time frame.

“We’re seeing fairly balanced growth across all industries,” Michael said, including manufacturing, health care and government. “It is good news. It isn’t just one piece or area, but a nice broad base.”

Housing construction, deemed “the industry most battered by the Great Recession” in the report, is expected to take off again, adding 50,000 new jobs throughout California in each of the next four years.

That could mean more than 24,000 new units in the three-county region through 2018, with 9,200 in Stanislaus and 3,600 in Merced.

“We’re expecting some pretty significant increases in the next three years,” Michael said.

Stanislaus’ housing starts peaked in 2006 with 2,660 units, falling to just 212 in 2011, with a slight uptick to 346 last year. Forecasters expect 815 this year, followed by a boom to 2,920 in 2017. A majority will be single-family houses, but duplexes and apartments should pick up, too, bringing 1,300 new multifamily units over the next four years, the report predicts.

Merced homebuilding dropped to a mere 77 starts in 2012 but should balloon to more than 1,000 a year by 2017, the document says.

Although housing construction remained “surprisingly flat” in 2014, “low mortgage rates, increasing consumer confidence and greater product availability in the form of new housing developments should spur a renewed increase in new homes in 2015,” the report says.

Recessionary job cuts in state and local government are slowly reversing, and the forecast predicts 20,000 such positions will be added this year. Even with steady growth in government jobs, California by 2018 still will have 30,000 less than at its peak in 2008, the report says.

California’s largest employment sector now is health services, which added 60,000 jobs in 2013 and 2014 and will continue growing at a modest rate, the forecast says.

The quarterly report relies on data and trends adjusted by professional judgment, Michael said.

This story was originally published February 2, 2015 at 8:18 PM with the headline "Sluggish Central Valley economic growth expected to break loose soon."