Stockton predicted to lead Northern California job growth

January 28, 2016 9:29am

•  Silicon Valley’s robust economy flowing into the Central Valley

•  “The severe drought has had a relatively small statewide economic impact”

The Stockton metropolitan area -- and Oakland -- are expected to lead Northern California job growth in 2016 after five years of San Francisco and San Jose posting the fastest growth, according to the new California economic forecast from the Center for Business and Policy Research at the University of the Pacific.

“While we expect a slow-down from incredible growth rates of recent years in Silicon Valley, its dynamic economy is the driving force behind much of the inland growth as high costs and scarce labor cause its economic growth to spill into neighboring areas,” the report by economist Jeff Michael says. The regional outlook finds that San Joaquin and Alameda counties led the state in population growth in 2014 and 2015,

The drought, which grabs headlines and provides fodder for politicians and their projects, is a non-starter when it comes to impacting California’s economy, the report says.

“The severe drought has had a relatively small statewide economic impact. We estimate total drought related losses in 2015 at $3-4 billion, less than 0.2% of state GDP. The El Nino fueled rainy season is off to a promising start, but we don’t anticipate any significant statewide economic boost if the drought abates,” the report says.

California economy as a whole will maintain steady growth according to the latest projection from the Center for Business and Policy Research. California is experiencing substantially faster job growth than the rest of the U.S., “and we are expecting the state’s economy to maintain steady 3% growth for the next several years even as the pace of job growth slows from 3% to a still solid 2% in 2016,” the report says.

After 2016, job growth is forecast to remain positive but slowly decelerate toward 1% as the unemployment rate stabilizes around a 5% rate. Significantly faster growth would require higher population growth, which seems unlikely given the state’s extremely high cost of living and building housing shortage, says the report.

Single-family housing starts are beginning to increase, it says, falling just short of 50,000 units in 2015. “We project a substantial increase over the next two years, to 66,000 in 2016, 85,000 units in 2017, before stabilizing near 90,000 units beyond 2017,” Mr. Michael says.

Multi-family housing starts have recovered pre-recession levels, and are projected to gradually increase from 50,000 units in 2015 to 60,000 units by 2018, the report says.

“While we expect housing construction to continue its recovery, increasing 50% over the next three years and provide a significant economic boost to inland areas, this will barely be enough to accommodate a projected 1% population growth rate for California,” Mr. Michael writes.

Nonfarm payroll jobs have grown at a strong 3% pace for the past three years, but Mr. Michael projects a more moderate 2.1% growth in 2016. Job growth will slow further in 2017 and 2018 as the economy approaches full employment, as 1% growth will be sufficient to keep pace with population and labor force growth, he says.

Health services have become the largest employment sector in the state, and is projected to add an additional 60,000 positions across California in 2016, says the report.

Other highlights from the report:

• Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery, having fully recovered pre-recession employment over three years ago. Growth in this sector will continue but as a slower pace as the cost and labor constraints begin to slow Silicon Valley growth in 2016.

• Growing tourism and a gradual shift in consumer spending from retail to restaurants has led the Leisure and Hospitality sector to exceed 4% job growth in each of the past 4 years, and is projected to add an additional 20,000 jobs in 2016.

• State and local government employment is growing again, and should add about 30,000 jobs statewide in each of the next several years. State and local government payrolls in California will finally regain their 2008 level in about two years.

• About 40,000 new construction jobs are anticipated in each of the next three years, about a 5% annual growth rate. Despite this expected growth, there will still be fewer construction jobs in 2020 than before the recession.

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.

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