Northern California

Strong vs Weak Fundamentals on Display as Economy Projected to Moderate

As inland Northern California’s economy continues growing in 2019 and 2020, some areas will play out stronger versus weaker depending on their relationship to the fallout from recent local wildfires—as well as potential future risks to the state and national economies.

That’s according to the “2019 North State Economic Forecast Conference,” recently hosted by Cal State Chico’s Center for Economic Development. The keynote speaker’s opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

Click here for the entire archived forecast report, or view the synopsis below:

Northern California Forecast

  • The inland Northern California economy will continue growing into late 2020, although between now and then slower growth will increasingly settle in quarter by quarter. Unless an unforeseen shock impacts the current business and consumer environment, Butte, Glenn, Tehama and Shasta counties will somewhat follow the trajectory of California’s economy as unemployment remains low, jobs are plenty, worker wages continue rising modestly, consumers and businesses continue their moderate spending habits, and financial institutions mostly keep lending-out money under safe and sounds guidelines.

  • A mild recession could hit Northern California (via its larger effects on California and the United States) by 2021, but even this scenario might not happen according to the forecast. Economic fundamentals seem solid enough that the economy may never enter a true “recession” (according to the classic definition) and could instead experience a very slow, near-zero percent growth period before perking up again. However, other experts and voices in the news media are predicting a traditional/normal recession sometime between late 2019 and early 2020. When a future recession finally happens—whether sooner or later—most experts think it will “feel” like the past recession of 2001, which was considered a mild contraction.

  • While job growth in Butte, Glenn, Tehama and Shasta counties from 2018 – 2027 will vary based on each county’s strengths and weaknesses, two areas stick out for different reasons: education/health services (uptrend) and construction (downtrend). Butte will experience the most balanced and stable growth (total jobs increasing 5 percent or 4,500 positions), rising modestly or solidly in nearly all employment categories, especially health/education services, professional/business services, and leisure/hospitality—with the exception of construction (which will contract). Glenn will see a major surge in wholesale/retail positions (14 percent) and moderate growth in other categories (except for zero growth in government, finance, and farming), with total jobs increasing 5 percent (450 positions). Shasta will experience a huge jump in health/education services (23 percent) and moderate growth in nearly all other positions (except construction), with total jobs increasing 8 percent (5,400 positions). And Tehama will grow extremely fast in some areas (health/education services, government, professional/business services, transportation/utilities) while modestly in others (but shrinking in “information” jobs by 9 percent)—with total jobs increasing 6 percent (1,200 positions).

  • Butte and Shasta counties have outpaced the entire state of California in median hourly worker-wage growth from 2013 – 2018. Over this five-year period, Butte ($16.73 per hour) was 10 percent higher in 2018 than 2003, and Shasta ($17.45 per hour) was 9 percent higher. Meanwhile, California ($20.14 per hour) was 7 percent higher, and the entire North Valley (Glenn, Tehama, Butte, and Shasta combined) was 2 percent higher ($16.68 per hour).

  • The annual percentage change in the cost of living for residents in the counties of Shasta and Butte over the past 15 years mirrors California’s—but with localized variations. All three regions have increased from 0 or negative annual percentages experienced during the Great Recession in 2007 – 2009 (and somewhat form 2010 – 2012), although Shasta County is the most erratic as it rises higher and drops lower in times of economic growth versus recession. Butte County’s trajectory, on the other hand, is a bit smoother and California’s is even more so. From 2012 – 2017, Shasta has averaged a 7 percent annual cost of living increase, Butte was 4 percent, and California was 5 percent.

  • Adjusted for inflation, today’s “real” median price of a single-family home in Butte, Glenn and Shasta counties is still noticeably below its past peak in 2005 – 2007. The same goes for California as a whole (and Sacramento County too). A then-versus-now comparison pegs Butte at $333,000 versus $229,000 today; Shasta at $313,000 versus $209,000 today; Glenn at $242,000 versus $175,000 today; California at $579,000 versus $446,000 today; and Sacramento County at $425,000 versus $296,000 today.

  • Home prices will continue rising throughout inland Northern California counties in 2019, although at a slower pace than the past couple of years. Butte County will jump 4 percent; Glenn will jump 5 percent; and many other counties across the Northern California region will increase between 0.5 – 6 percent. But on the edges of this price spectrum, Siskiyou County could rise 16 percent and Lake County could drop 2 percent (the only area to fall). California (entire state) could rise 8 percent, driven by select regions of the state that still have strong upward home-appreciation momentum.

  • The recent Northern California wildfires will continue having a mix of short and long-term effects on the region—some negative (lost wealth, opportunity trade-offs, and migration) and some positive (rebuilding efforts and economic stimulus). There are three issues credit union leaders working in any natural disaster-prone area should be aware of: 1) how many residents and credit union members will choose to rebuild their “local” lives versus migrate elsewhere; 2) how many businesses and local workers adjust—or not—to their post-disaster environment; and 3) what types of insurance and federal monies, and how much, will flow into local economies. Local credit union leaders should keep an eye on community efforts to rebuild homes and structures, and they should “think regionally” for the sake of larger community partnerships. They should also keep in mind that local governments and the community will see a future fallout in property tax revenue.

  • The fire insurance payout to Northern California wildfire victims is an “economic positive” for those fortunate enough to have access to funds to rebuild their homes—but not all are insured. Also, the positive impact depends on who decides to stay versus who migrates out of the region for other opportunities. For members fortunate enough to rebuild, credit unions may have to manage a surge of inbound deposits from insurance money just to see those deposits leave in the short-term for rebuilding efforts. Managing this deposit surge could be a challenge. Additionally, some members may keep their relationship with a credit union but move elsewhere in the county, or even the broader region or the state. And shops, small businesses and companies will have to consider their next moves from both a marketplace and worker-retention strategy. Any credit union that wants to stay engaged with an affected business establishment or member/local consumer should be aware of where these entities and individuals choose to establish their “new” lives, means of livelihood, and the number and type of financial institutions in those new environments.

  • Northern California credit unions should be gauging how local labor markets are impacted this coming summer after last year’s wildfires. Credit union leaders should envision how these employee markets may expand, contract, or change depending on the local wildfire fallout. The demographic of local workers and customers may transition depending on who was hit most by the fires and what stage of life they’re in, whether they are young, middle-age or elderly.

U.S. Economic Fundamentals Versus Risks
The forecast presentation (click here) also touched on the following areas (slides 2 – 16):

  • Risks to the U.S. economy, including ongoing trade/tariff tension with foreign countries, potential future interest rate changes, and other issues.
  • Equity/stock market volatility, graphs, and perspective.
  • Year-over-year Personal Consumption Expenditure (PCE inflation) changes and the Federal Reserve’s response.
  • Historical comparison of the 10-year Treasury bond (minus 3-month treasury maturity) versus the “effective” federal funds rate.
  • Total U.S. household debt composition/breakdown from 2003 – 2018.
  • Thirty-day and 90-day total U.S. household debt delinquency composition/breakdown from 2003 – 2018.
  • Projected U.S. annual federal budget deficits from 2018 – 2028, and “averages” from prior historical periods versus the future.
  • Excess reserves at U.S. banks from 1997 – 2018, the Federal Reserve’s “quantitative easing” program, and the effects of the most recent “quantitative tightening” initiative.
  • Median economic forecasts for selected U.S. measurements in previous periods versus current economist surveys.

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