Slowing of economic activity sign of stability

Wages struggle to keep up with inflation

After the economy both nationwide and in the Central Valley reached its peak in recent years, a slowdown of economic activity displayed in the most recent San Joaquin Valley Business Forecast released in May shows a region that has recovered from the Great Recession.

Stanislaus State produces the business forecast twice a year, providing businesses with detailed information about trends in the region relative to those in the state and nation. The report not only helps minimize uncertainty surrounding these economic indicators, but also generates market consensus on a regional basis helping businesses, investors and consumers make better-informed decisions.

Foster Farms Endowed Professor of Business Economics Gökçe Soydemir has been the lead author of the report since 2011, and said that the state of the Valley’s economy continues to slow after years of expansion following the recession.

“When we started doing the business forecast, the economy was still in a recessionary phase and many people were wondering if we were going to get out of it. We looked at the numbers and saw indications of improvement, but many people skeptical,” Soydemir said. “We struggled to convince people because they were very pessimistic, and when months passed by it became evident that the Valley was getting out of the recession here, and it’s been gradually growing since.

“Right now, the economy has peaked and growth has started to slow down. But, we’re not talking about worsening of employment — numbers are just showing that the pace of growth is slowing.”

Many factors throughout the Valley contribute to the slowing down of economic growth, like higher unemployment rates than the rest of the state and country, a higher ratio of unskilled-to-skilled workers and lower educational attainment levels.

The recent slowdown is manifesting at different rates among the region’s key employment categories; education and health services employment growth declined from 4.79 percent to 2.96 percent in 2018, while manufacturing employment growth fell from 0.52 percent to 0.25 percent. Leisure and hospitality services as well as retail trade employment growth both slowed as well.

This doesn’t mean that people in the Valley aren’t being hired, Soydemir explained, stating that many of these categories are still seeing new hires by the hundreds — just less than before.

“It’s growing, but just at a slower rate. That’s normal for regularly occurring business cycles in the economy,” he said. “People shouldn’t panic. You don’t want an economy to overheat, either, because then that will cause more problems in the future to tame the economic inflation.”

Where some employment categories have cooled off, others are still growing, the forecast revealed. The Valley’s rich agriculture trade contributed to an employment growth of just over one percent, and construction job growth increased from 5.32 percent to 7.67 percent.

The latter is an indication of vibrant construction activity in the Valley, Soydemir said, and a result of home values growing at the same rate this year as they did in 2018.

Stanislaus County’s construction sector is performing better than other counties in the Valley, he added, which, along with large distribution centers built in the county, has contributed to the area’s employment rate growing at a faster rate than in 2017. Stanislaus County’s employment growth is 1.31 percent, compared to 1.20 in the last report.

The last business forecast, published in December 2018, pointed to rising oil prices and the ongoing trade war as causes of increasing prices in the Valley. The same rings true in 2019, with an increase in oil during the first quarter of the year placing further pressure on the inflation rate. Due to high oil prices, the rate of inflation is projected to increase in the coming months before settling around a long-term rate of 2.31 percent by the second quarter of 2020.

Another cause of inflation are tariffs, as Valley imports like cement, steel and liquid fertilizer continue to decline as trade talks between China and the U.S. failed to reach resolution. Almonds, wine, grapes and other Valley produce exports took a hit from the resulting retaliation, Soydemir said.

“We thought the tariffs would go away by now and that some kind of agreement would be reached…if those disputes are not resolved, we get to pay for it in the Valley in terms of consumption and then income,” he said.

As prices rise, wages aren’t keeping up with inflation. At an annual average growth rate of 3.03 percent, wage growth in the Valley fell behind the inflation rate in 2018, showing a decline in real wages of 0.32 percent. This means Valley residents weren’t able to purchase as many goods and services in 2018 as they could in 2017.

“This area is three-quarters unskilled workers, so they’re very vulnerable to real wage declines. And on top of that, things like trade wars hit the Valley much harder,” Soydemir said. “We here in the Valley stand to lose from things like this.”

The complete San Joaquin Valley Business Forecast can be found at