May 2014 California & Metro Forecast
State nearing pre-recession employment levels
(Stockton, Calif.) - The California economy is strengthening, and it will reach a major recovery milestone this quarter as non-farm payroll employment reaches its pre-recession, 2007 peak of 15.4 million jobs, according to the latest projection from the Business Forecasting Center at the University of the Pacific.
California will reach its pre-recession employment milestone nearly a year earlier than previously forecast as revised employment data shows California jobs grew at a strong 3% rate in 2013. California's improving labor market is also evidenced by the state's unemployment rate falling below 8% for the first time since 2008. The forecast projects unemployment will remain above 7% for all of 2014, drop below 7% near the end of 2015, and finally reach 6% at the end of 2016.
The regional outlook finds all ten metro areas in the forecast have posted solid job growth of greater than 2%, and the Bay Area continues to lead the state's recovery. While the drought is having some impact on agricultural production and could reduce employment by about 1% in the San Joaquin Valley this year, it is not large enough to stop economic recovery in the Valley. Impacts in certain farming communities will be large, but overall job growth in the Valley should still reach or exceed 2% this year compared to about 3% in 2013. Fresno has lead Valley job growth in recent months with strong gains in health care, and Sacramento is projected to lead Valley growth in 2015 as state budgets and housing market continue to recover and construction on the new downtown arena begins.
In addition to detailed five year economic projections California and ten metro areas, the forecast includes essays on the latest developments in the Stockton bankruptcy case, and the economic impact of the drought. The Business Forecasting Center at the University of the Pacific was founded in 2004. Housed in the Eberhardt School of Business, the Center produces quarterly economic forecasts of California and 10 metropolitan areas in Northern and Central California, in depth studies of regional issues, and offers custom economic research services to public and private sector clients.
For more information, visit http://forecast.pacific.edu/.
California Annual Forecast Summary
|Real Gross State Product (% change)||2.6||2.6||3.3||3.7||3.5||3.2|
|Non-Farm Payroll Employment (% change)||3.0||2.1||2.3||2.3||2.0||1.4|
|Unemployment Rate (%)||8.9||7.8||7.2||6.4||5.7||5.4|
|Housing Starts (thousands)||73.1||80.0||117.5||146.1||152.2||151.9|
Highlights of the May 2014 California Forecast
- California is forecast to experience 3.1% growth in real gross state product over the next year, and accelerate to 3.7% growth in 2016.
- California unemployment rate has fallen below 8%. We expect the unemployment rate to decline more gradually in the months ahead and fall below 7% in late 2015, and reach 6% by the end of 2016.
- Nonfarm payroll jobs should recover their pre-recession, 2007, level next month, and are projected to grow at a 2.1% rate in 2014, and increase to 2.3% growth in 2015 and 2016.
- State and local government employment stabilized in 2013 after four years of decline. We expect modest, 0.5% growth in state and local government payrolls in 2014 and a gradual increase to 1.4% growth by 2017. Because of this slow recovery, we project state and local government payrolls will still be slightly below 2008 levels in 2018.
- The Health Services sector was the only private sector to experience consistent job growth throughout the recession. Health care employment will continue substantial gains of about 60,000 jobs per year over the next few years.
- Professional Scientific & Technical Services is a high-paying sector that has led job growth in the recovery and fully recovered pre-recession employment in early 2012. This sector is projected to continue over 3% growth, adding 35,000 jobs over the next year.
- Manufacturing employment has shown very little growth over the past four years after a decade of large declines. We project roughly 1% growth in manufacturing jobs over the next few years with some of the growth driven by the construction rebound and the increasing demand for building materials.
- About 250,000 new Construction jobs are expected to be created over the next four years, about one-fifth of the 1.3 million jobs California will add between 2014 and 2018. Despite leading the state in job growth over the next four years, there will still be fewer Construction jobs than before the recession.
- Single-family housing starts have been slow to respond to increased housing prices, and we have reduced our forecast for 2014 single family housing starts to 40,000 units. We project a significant increase to 65,000 single-family units in 2015, 90,000 in 2016, and remaining just below 100,000 units in subsequent years.
- Multi-family housing starts have recovered pre-recession levels, and are projected to increase from 40,000 new starts in 2014 to 57,000 units by 2017.