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Pacific forecast calls for continued economic growth in California

Oct 4, 2016

The California economy is maintaining solid growth after a slight slowdown at the beginning of the year according to the latest projection from the Center for Business and Policy Research at the University of the Pacific. 

After a weak first quarter in 2016, California job growth has strengthened as expected and is projected to maintain a pace of about 25,000 net new jobs each month for the remainder of the year. Consumer spending and residential investment are growing slowly and remain well positioned to continued growth in California in 2017. The state’s unemployment rate is expected to stabilize near its current level and remain below 6 percent for the next few years.

The regional outlook finds that our predicted Bay Area “slow down” is underway, but is occurring slower than expected. This continued strong performance is spilling over into neighboring areas and is the primary reason that the nearby Stockton metropolitan statistical area is the fastest growing economy in the Central Valley and is the only Northern California metro area where we predict greater than 3 percent job growth in 2017. 

Growth in Sacramento has lagged behind other large metro areas in the state, but private job growth in the capital region is improving. We project it will maintain steady growth and eventually lead the region in 2019 and 2020 as other areas slow. 

The forecast also includes a discussion of the potential impacts of the election. This includes a discussion of the four California initiatives expected to have the greatest impact on the state’s economy: school bonds, income tax extension, drug prices and marijuana legalization. The forecast anticipates a relatively stable U.S. policy environment following a Hillary Clinton election and discusses some of the unpredictability and risks that could alter the economic outlook if Donald Trump were to prevail in November.

California Annual Forecast Summary 

 

2015

2016

2017

2018

2019

2020

Real Gross State Product (% change)

4.2

2.5

2.9

2.4

2.4

2.4

Non-Farm Payroll Employment (% change)

3.0

2.6

1.6

1.1

0.8

0.9

Unemployment Rate (%)

6.2

5.5

5.6

5.6

5.8

5.9

Housing Starts (thousands)

91.4

96.9

128.2

144.1

152.9

159.0


 

Central Valley Metro Forecast Summary

Metro Area

Nonfarm Payroll Employment
(% change)

Unemployment Rate (%)

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

Sacramento

3.0

2.4

1.9

1.3

1.2

5.9

5.4

5.6

5.7

5.9

Stockton

3.6

3.7

3.2

1.8

1.1

8.9

8.2

8.1

7.9

8.2

Modesto

2.7

3.3

0.8

0.8

1.0

9.5

8.6

9.0

9.2

9.5

Merced

1.9

3.1

1.8

1.4

1.6

11.4

10.6

10.3

9.9

9.7

Fresno

3.8

2.9

2.1

1.1

1.0

10.2

9.5

9.8

9.8

10.1

California

3.0

2.6

1.6

1.1

0.8

6.2

5.5

5.6

5.6

5.8

The 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 (%)

2015

2016

2017

2018

2019

2015

2016

2017

2018

2019

San Francisco

4.7

3.4

2.3

1.8

1.2

3.5

3.2

3.1

3.0

3.1

San Jose

4.1

3.7

2.3

1.6

1.0

4.3

3.9

3.7

3.4

3.3

Oakland

3.0

2.5

1.9

1.2

1.0

4.9

4.4

4.5

4.6

4.8

California

3.0

2.6

1.6

1.1

0.8

6.2

5.5

5.6

5.6

5.8

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

Highlights of the Fall 2016 California Forecast

  • California is forecast to experience relatively steady growth in real gross state product, averaging 2.5% growth through 2020. 
  • The California unemployment rate has reached its low point in this cycle and is projected to stabilize between 5.5% and 6% over the next four years.  
  • Nonfarm payroll jobs continue to grow at a solid 2.6% statewide after exceeding 3% in the previous three years. Nonfarm payroll growth is projected to drop below 2% in 2017 and settle towards a consistent 1% growth rate in 2018 and beyond.       
  • Health Services has become the largest employment sector in the state and is projected to add an additional 50,000 positions over the next 12 months, slightly less than the 65,000 jobs added in the past 12 months.  
  • Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery. Growth in this sector will slow to about 25,000 jobs over the next year compared to over 50,000 in some recent years as Silicon Valley growth cools.
  • Growing tourism and a gradual shift in consumer spending from retail to restaurants has fueled rapid growth in the Leisure & Hospitality sector.  However, this sector’s growth is slowing to 30,000 new jobs over the next 12 months and will cool further to 15,000 new jobs each year as the higher minimum wages lead to slower hiring.
  • State and local government employment will be one of the slowest growing sectors, projected at 1% or less job growth over the next several years as state and local governments grapple with slower revenue growth and rising pension costs.  State and local government payrolls in California have still not recovered to their pre-recession level.   
  • About 35,000 new Construction jobs are anticipated in each of the next three years, just below a 4% annual growth rate.  Despite this expected growth, there will still be fewer Construction jobs in 2020 than before the recession.
  • Single-family housing starts are growing slowly and are projected to just eke over 50,000 units in 2016.  We project a much more substantial increase to 77,000 units in 2017 as the state’s growing housing shortage finally spurs interest in new homes. 
  • Multi-family housing starts have surpassed pre-recession levels, but growth has stalled in recent months and 2016 is on track to be similar to the 45,000 multi-family units produced in 2015.  We expect multi-family growth to resume in 2017 and exceed 60,000 units by 2019.

About the Center for Business and Policy Research

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. The Center is a jointly housed in the Eberhardt School of Business and the McGeorge School of Law and has offices at the Sacramento and Stockton campuses. The Center produces economic forecasts of California and eight metropolitan areas in Northern and Central California, in depth studies of regional economic and policy issues, and conducts custom studies for public and private sector clients.  For more information, visit Pacific.edu/CBPR.

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