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California and Metro Forecast: May 2015

May 29, 2015

The California economy will maintain strong growth despite soft U.S. economic growth and a deepening drought, according to the latest projection from the Center for Business and Policy Research at the University of the Pacific.  The latest forecast boosts its projection of 2015 job growth in California to 2.8%, up from 2.3% in the January forecast.  With the State’s unemployment rate projected to drop below 6% by the end of the year, more moderate 1.8% job growth is anticipated in 2016.  New home construction is beginning to pick up.  Housing starts are projected to exceed 100,000 units in 2015, and grow to more than 150,000 units in 2017.

While the drought is having substantial impacts on the environment and lifestyles, its economic impacts remain relatively small and should remain below 0.25% of gross state product even as conditions worsen in 2015.  The Central Valley posted strong growth in 2014, and the first half of 2015 as the agriculture industry is showing resilience against the drought, and the housing market and government sector recovers.  Most Central Valley metro areas will average single-digit unemployment in 2015, including Fresno, an area that has only seen an unemployment rate below 10% in 3 of the past 25 years. 

The regional outlook finds the Bay Area continues to have the hottest economy in the State.  The tech-driven San Jose area is on pace for rapid 5% job growth in 2015 with San Francisco not far behind at 4.2% as companies remain undeterred by extreme housing costs and a tightening labor market in the Bay Area.  We project these constraints to growth could cut the pace of Bay area growth in half by 2016, but still remain vibrant and leading the State’s economy.  The Sacramento area continues its slow and steady recovery, and will finally recover its pre-recession employment level by the end of 2015, the last of California’s ten largest metro areas to achieve this benchmark.   

The Center for Business and Policy Research at the University of the Pacific was founded in 2004, and was known as the Business Forecasting Center until March 2015. Housed in the Eberhardt School of Business, the Center produces economic forecasts of California and eight 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 Go.Pacific.edu/CBPR.

 

 California Annual Forecast Summary

 

 

 

 

2014

2015

2016

2017

2018

2019

Real Gross State Product (% change)

3.3

2.5

3.4

3.3

3.0

3.1

Non-Farm Payroll Employment (% change)

3.1

2.8

1.8

1.4

1.1

1.2

Unemployment Rate (%)

7.5

6.2

5.6

5.5

5.4

5.2

Housing Starts (thousands)

78.9

103.2

133.3

157.6

161.5

166.1


 

Central Valley Metro Forecast Summary

 

 

 

 

 

 

 

 

Metro Area

Nonfarm Payroll Employment
(% change)

Unemployment Rate (%)

 

 

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

 

Sacramento

2.8

2.6

2.1

1.8

1.6

7.2

5.8

5.3

5.2

5.1

 

Stockton

3.1

3.0

2.1

1.7

1.4

10.6

8.9

8.5

8.2

8.1

 

Modesto

2.8

2.1

1.8

1.7

1.5

11.2

9.4

9.2

9.1

9.0

 

Merced

3.3

3.6

2.2

2.1

1.9

12.8

10.7

9.8

9.3

9.1

 

Fresno

3.4

3.9

2.3

1.7

1.3

11.6

9.8

9.2

9.0

9.0

 

California

3.1

2.8

1.8

1.4

1.1

7.5

6.2

5.6

5.5

5.4

 

Sacramento MSA includes Sacramento, El Dorado, Placer, and Yolo counties. Stockton, Merced, Fresno and Modesto MSAs correspond to San Joaquin, Merced, Fresno and Stanislaus counties.

 

Bay Area Metro Forecast Summary

 

Metro Area

Nonfarm Payroll Employment
(% change)

Unemployment Rate (%)

 

2014

2015

2016

2017

2018

2014

2015

2016

2017

2018

 

San Francisco

4.3

4.2

2.2

1.4

0.9

4.5

3.9

3.7

3.5

3.4

 

San Jose

4.6

5.1

2.6

2.1

1.4

5.3

4.2

3.9

3.5

3.4

 

Oakland

2.7

2.1

2.1

2.6

1.4

6.0

5.0

4.6

4.3

4.1

 

California

3.1

2.8

1.8

1.4

1.1

7.5

6.2

5.6

5.5

5.4

 

San Francisco MSA includes San Francisco, Marin, and San Mateo Counties. Oakland MSA includes Contra Costa and Alameda Counties. San Jose MSA includes Santa Clara and San Benito Counties. 

Highlights of the May 2015 California Forecas

  • California is forecast to experience 3.4% growth in real gross state product over the next 12 months, and remain near 3% growth through 2019.
  • California unemployment rate has fallen to 6.3%.  We expect the unemployment rate to drop below 6% this fall, and decline more gradually as more people reenter the workforce.  The unemployment rate is expected to remain between 6% and 5% between 2016 and 2019.
  • Nonfarm payroll jobs have grown at a strong 3% pace for the past year, and are projected to grow at a more moderate 2.1% pace for the next 12 months.   
  • State and local government employment is once again growing slowly, and should add 20,000 jobs statewide over the next year.  By 2018, state and local government payrolls in California will finally regain their 2008 level.   
  • Health Services has become the largest employment sector in the state.  Consistent gains will continue, although the 50,000 additional jobs projected for the next two years is a slight decline from about 60,000 new jobs the previous two years.
  • Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery, having fully recovered pre-recession employment three years ago.  This sector is projected to continue strong growth, adding over 50,000 jobs over the next year.
  • About 50,000 new Construction jobs are anticipated in each of the next three years, about a 7% annual growth rate.  Despite this expected growth, there will still be fewer Construction jobs in 2018 than before the recession.
  • Single-family housing starts have been extremely slow to respond to increased housing prices, but will increase to nearly 50,000 units in 2015.  We project a substantial increase over the next two years, to 72,000 in 2016, and 95,000 units in 2017 and beyond. 
  • Multi-family housing starts have recovered pre-recession levels, and are projected to increase from about 40,000 in 2014 to 55,000 in 2015, and 61,000 in 2016.
  • The severe drought has had relatively mild impacts on the State’s economy.  The drought likely reduced state GDP by about 0.1% in 2014.  The impact will grow in 2015 but remain below 0.25% of gross state product.

Contact: Director Jeff Michael, Ph.D.
Office: 209.946.7385
Cell: 209.662.5247
jmichael@pacific.edu

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