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SAN JOAQUIN VALLEY

BUSINESS FORECASTREPORT2015 | Volume V • Issue 1

Table of Contents

Contributors ............................................................................................................................ 1

Executive Summary ............................................................................................................. 2

Introduction ........................................................................................................................... 3

Employment Indicators ....................................................................................................... 4

Housing Sector .....................................................................................................................14

Inflation and Prices ..............................................................................................................16

Banking and Capital Markets ...........................................................................................18

Concluding Remarks .........................................................................................................20

Contributors

BUSINESS FORECAST REPORT 2015SAN JOAQUIN VALLEY

California State University, StanislausOne University Circle Turlock, CA 95382

Volume V, Issue 1

Gökçe Soydemir, Ph.D

We wish to thank Foster Farms for generously providing the endowment for this project.

Dr. Gökçe SoydemirDr. Nael Aly Dr. David Lindsay

Haider Al-kaabiJack Doo

Carmen GarciaJoseph Sada

Nancy Mardakis Monica Teicheira

Communications & Public Affairs Team

Tim Lynch

Janice Curtin

Brian VanderBeek

Steve Caballero

Dr. Annhenrie Campbell

Sandra Assaker

San Joaquin Business Forecast Report, 2015 | 1

The San Joaquin Valley’s economy has adapted exceptionally well to the drought.

Total employment in the San Joaquin Valley in 2015 grew by 1.95 percent, higher than the 14-year average rate of 1.19 percent, and exceeding the 1.71 percent growth of 2014. Projections point to 1.67 percent annual total employment growth in 2016 and 2017.

Unlike previous years, employment grew in all counties at varying speeds. Fresno County’s employment growth was the fastest in 2015, followed by Merced, San Joaquin and Tulare counties. Stanislaus and Kings counties grew at speeds close to the Valley average, while employment growth in Madera and Kern counties was much slower relative to the historic average and to their neighbors.

The drought has underscored the essential need to increase water storage capacity in the Valley. But even as storage systems have threated to go dry, above-average employment growth has been the rule in all previous drought years. Individual counties – Madera, for example – reported employment declines in some drought years. Had there been no drought, employment levels in the Valley undoubtedly would have grown faster.

As overall employment gained, the sectors that previously paced the growth no longer led the charge. For the first time since the recession, construction was no longer the Valley’s leading category of employment growth, falling from 4.65 percent in 2014 to 3.08 percent in 2015. Trade, transportation and utilities employment registered 5.01 percent growth to outpace all sectors. Financial activities employment, a suffering area of growth since the recession, rebounded in 2015. The Valley’s manufacturing employment outperformed state and national averages. Incoming actual values for 2015 mostly fell between the optimistic and most likely projections, providing ample evidence that the forecasts tended to be more realistic than optimistic in nature.

The increase in Valley home prices remained above the long-run average, but was not as strong as in recent years, and projections point to a further decline in growth in 2016 and

2017. A similar pattern is expected for single-family housing permits. One area to watch is the 30-year Freddie Mac interest rate, which would be expected to increase should the Federal Reserve follow through with its anticipated interest rate hike in 2016.

The continued appreciation of the U.S. dollar deepened the trade deficit and hurt Valley exports. While consumers benefitted from the lower prices for imported goods, the stronger dollar made Valley exports less competitive in international markets.

The yearly inflation rate of 1.0 percent was heavily influenced by the absence of cost (push) factors and weak demand (pull) factors, combined with the low price of gasoline and other fuels. The low rate also deterred the Federal Reserve from raising interest rates, given the Fed’s

mission to achieve and maintain price stability.

With the labor market tightening relative to recent years, average weekly wages trended upward and are expected to continue on that path in the next two years,

outpacing inflation. The tighter labor market also led to an increase in attrition and job turnover.

Vibrant retail activity, combined with the growth in total employment, resulted in a growth in the Valley’s total bank deposits. Accruals maintained their lowest levels in eight years, while foreclosure starts were minimal relative to recession years. Increases in net loans and leases kept pace with the boost in bank deposits and were at the highest levels since the end of the recession.

In all, economic growth in 2015 further demonstrated the Valley’s adaptability to the four-year drought. Aside from the risks emanating from the dollar’s appreciation and other associated elements of the external account, as well as the political risks in the Middle East, Russia and China, projections point to further growth in 2016 and 2017.

Executive Summary

2 | California State University, Stanislaus

In all, economic growth in 2015 further demonstrated the Valley’s adaptability to the four-year drought.

This report assesses the past, current and future business trends in the San Joaquin Valley relative to the state and the nation. Time series data spans from January 2001 to August 2015. Two-year medium-term forecasts span from September 2015 to December 2017. The yearly average figure for 2015 is from the first eight months of the year including preliminary values for August, whereas the figure for 2014 is from the full 12 months.

The remainder of this report is structured as follows: Section B provides a discussion of San Joaquin Valley labor market conditions; Section C reports the region’s real estate market; Section D reports prices and inflation; and Section E reports banking and capital market indicators.

Introduction


Employment Indicators


Valley total employment, despite the drought’s four-year impact, posted higher growth numbers in 2015 than 2014. Unlike 2014, employment numbers grew in all counties, albeit at varying intensities. Fastest growth occurred in Fresno County, with employment growing 2.90 percent in 2015, followed by 2.33 percent growth in Merced County. San Joaquin, Stanislaus, Kings and Tulare counties grew at rates close to the Valley average, while Madera and Kern counties posted the least yearly growth. u

As predicted in previous reports, Valley total employment exceeded 1.65 million in 2015, and is on route to reaching 1.70 million by the first half of 2017. Oceans limit California’s westward growth. The only direction California can grow is eastward. Thus, regions such as the San Joaquin Valley are situated at an advantageous position, offering abundant land, labor and capital. However, future expansion in these regions means finding ways to store more water to sustain both agriculture and urban growth. Without finding sustainable ways to store more water to meet increasing demand, the Valley’s economic development would be more difficult. u

Construction employment had recorded the fastest growth in employment year-after-year since the end of the recession, but this dynamic changed in 2015, when trade, transportation and utilities employment surpassed construction as the fastest category of employment in the Valley. Unlike previous years, construction employment posted the fourth-fastest growth. Financial activities employment halted its decline since the end of the recession and posted growth in 2015. Manufacturing employment growth in the Valley performed better than the state and national averages in the same category. Retail trade employment posted another year of strong growth relative to the wholesale trade employment.

As of the third quarter of 2015, Stanislaus County had the lowest unemployment rate in the Valley at 8.5 percent, followed by Fresno and San Joaquin counties at 8.9 percent and 9.1 percent, respectively. Tulare County had the highest unemployment at 12.0 percent. The Valley’s average rate of unemployment during the same quarter was 10.07 percent, significantly down from the previous years.

In 2015, Valley total employment grew 1.95 percent. Considering the series’ sample benchmark growth is 1.19 percent, 2015 employment growth was quite significant when factoring the drought’s negative impact. Projections point to 1.68 percent average yearly growth in 2016 and 1.73 percent in 2017.

1,300,0001,350,0001,400,0001,450,0001,500,0001,550,0001,600,0001,650,0001,700,0001,750,0001,800,000

2001M01

2001M07

2002

M01

2002

M07

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010M01

2010M07

2011M01

2011M07

2012M01

2012M07

2013M01

2013M07

2014M01

2014M07

2015M01

2015M07

2016M01

2016M07

2017M01

2017M07

Months

Total Employment

Actual ProjectedNu

mbe

r of E

mpl

oyee

s

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

Actual

1.19%

2.20%2.04% 1.95%

Optimistic

2.00% 2.06%

Most Likely

1.68% 1.73%

Pessimistic

1.36% 1.39%

Total Employment:Historical vs. Projected Average Yearly Growth

Aver

age P

erce

ntag

e Cha

nge


After rising above 80 points in 2014, consumer confidence kept its increasing pattern until the first quarter of 2015, after which the series exhibited a flat pattern, then fell to 91 points in July from 103.8 in January. The incoming index following July, however, showed that consumer confidence was poised to increase further as the index posted 101.3 and 103 for August and September, respectively. u

The Valley’s employment continued to grow faster than the labor force. Faster employment growth puts upward pressure on wages and salaries. From a structural standpoint, in areas like the Valley, labor force growth normally would exceed employment growth. However, since 2011, the discrepancy between employment and labor force growth has seemed to stay constant. With demand for labor growing faster than supply, the price of labor would increase. This indeed is the case for the Valley economy as upward wage pressures build up. Average weekly wages have increased more than the inflation rate, allowing the Valley consumers to enjoy more purchasing power. u

In the fourth quarter of 2014, the Valley’s employment growth briefly exceeded that of the state, as would be expected from a regional economy that has plenty of room for growth. This was the first time since the second half of 2013 that the Valley’s employment growth exceeded the state’s employment growth. The drought certainly had a role to play in forming such an unusual pattern. In the next two years, however, labor force growth should exceed employment growth in the Valley consistent with the structural pattern observed in the past during expansionary phases of the business cycle. u

0

20

40

60

80

100

120

140

160

9/1/1992

7/1/1993

5/1/1994

3/1/1995

1/1/1996

11/1/199

69/1/1997

7/1/1998

5/1/1999

3/1/20

001/1/20

0111/1/200

19/1/20

027/1/20

035/1/20

043/1/20

051/1/20

0611/1/200

69/1/20

077/1/20

085/1/20

093/1/20

101/1/20

1111/1/2011

9/1/20

127/1/20

135/1/20

143/1/20

15

Inde

x Val

ueMonths

Consumer Confidence Index

Conference Board

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

2002

M02

2002

M07

2002

M12

2003

M05

2003

M10

2004

M03

2004

M08

2005

M01

2005

M06

2005

M11

2006

M04

2006

M09

2007

M02

2007

M07

2007

M12

2008

M05

2008

M10

2009

M03

2009

M08

2010M01

2010M06

2010M11

2011M04

2011M09

2012M02

2012M07

2012M12

2013M05

2013M10

2014M03

2014M08

2015M01

2015M06

Months

Labor Force vs. Employment Growth

Labor Force Employment

Per

cent

Cha

nge f

rom

Pre

viou

s Yea

r

-6-5-4-3-2-1012345

2002

M01

2002

M07

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010M01

2010M07

2011M01

2011M07

2012M01

2012M07

2013M01

2013M07

2014M01

2014M07

2015M01

2015M07

Months

Employment Growth: State vs. San Joaquin Valley

Valley State

Annu

al P

erce

nt C

hang

e

Average weekly wages have increased more than the inf lation rate, allowing the Valley consumers to enjoy more purchasing power.



When the very long-run business cycles had begun to reverse, capital flew from emerging markets back to the United States. As a consequence, emerging markets began to suffer. The continuously appreciating dollar had a negative impact on the international competitiveness of domestically produced goods. As a result, the worsening trade balance took a greater bite of the U.S. gross domestic product, lowering real economic growth u forecasts. A struggling manufacturing sector also had an impact on the real economic growth forecasts. Nationwide, the industrial production index began to decline during the first quarter of 2015. Projections for 2016 and 2017 now point to 2.56 percent average annual growth in real economic growth.

Education and health services employment u in the Valley exceeded 195,000 in 2015 despite the slowdown in growth over the previous years. It took only two and a half years to gain 20,000 jobs in the sector – the fastest such increment growth observed since 2001. Projections show that it will take only two years for the next 20,000 increment increase, an even faster rate of growth than the one observed from July 2012 to January 2015. Employment growth in education and health services in the Valley has been quite robust, even increasing, albeit at a slower rate, during the recessionary years.

The sample benchmark growth rate u of the Valley’s education and health care services employment is 3.42 percent. Employment growth in 2015 was less than the benchmark rate, increasing at an average yearly rate of 2.76 percent. Yearly growth in this category of employment is projected to exceed the benchmark rate in 2017. Average yearly growth in education and health care

-9.0

-7.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

9.0

2000

q1

2000

q4

2001q3

2002

q2

2003

q1

2003

q4

2004

q3

2005

q2

2006

q1

2006

q4

2007

q3

2008

q2

2009

q1

2009

q4

2010q3

2011q2

2012q1

2012q4

2013q3

2014q2

2015q1

2015q4

2016q3

2017q2

Quarters

U.S. Real GDP Annual Growth

Actual Projected

Perc

enta

ge C

hang

e

115,000

135,000

155,000

175,000

195,000

215,000

235,000

2001M01

2001M09

2002

M05

2003

M01

2003

M09

2004

M05

2005

M01

2005

M09

2006

M05

2007

M01

2007

M09

2008

M05

2009

M01

2009

M09

2010M05

2011M01

2011M09

2012M05

2013M01

2013M09

2014M05

2015M01

2015M09

2016M05

2017M01

2017M09

Months

Education and Health Services Employment

Actual Projected

Num

ber o

f Em

ploy

ees

Aver

age P

erce

ntag

e Gro

wth

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

Actual

3.42%

7.16%

3.12%2.76%

Optimistic

2.97%

4.04%

Most Likely

2.31%

3.58%

Pessimistic

1.65%

3.13%

Education and Health Services Employment: Historical vs. Projected Average Yearly Growth

The continuously appreciating dollar had a negative impact on the international competitiveness of domestically produced goods.


education and health services employment in the next two years is projected to hover around 2.94 percent.

The trend line formed post-recession began to steepen as new numbers arrived in 2015. Valley manufacturing employment u performed better than the nationwide trends, posting 1.67 percent yearly growth, significantly better than the sample benchmark average of -0.06 percent. Distribution centers in Patterson and elsewhere contributed to the Valley’s manufacturing activity in 2015. Manufacturing employment had exceeded 120,000 before the recession. Projections show that employment in this category will reach the same numbers by the third quarter of 2017.

The 10-year benchmark growth u in manufacturing employment will switch from negative to positive territory in 2016. Distribution centers such as Amazon, serving as a magnet, will continue to attract others to relocate in the Valley. Manufacturing companies increasingly are becoming aware of the Valley’s cheap labor and abundant land when considering relocating in the Valley. Projections point to 1.54 percent average yearly growth in 2016 and 1.72 percent in 2017.

Weakness in nationwide manufacturing can be depicted from the Institute of Supply Management’s purchasing managers index. After reaching 60 points in July 2014, well above 50 points, the required minimum level for economic expansion, the index began to decline steadily. As of August 2015, the index stood at 51.1 points. Any further decline in the index would correspond to contraction in the national economy. National manufacturing employment grew 1.4 percent in 2015. Statewide, growth in this category of employment was only 0.31 percent. The Valley performed better than the state and national average in manufacturing activity. u

Actual Optimistic Most Likely Pessimistic

-0.50%0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%4.00%4.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

-0.06%

0.99%

4.05%

1.67% 1.82%1.91%

1.54%1.72%

1.25%1.52%

Manufacturing Employment:Historical vs. Projected Average Yearly Growth

Aver

age P

erce

ntag

e Cha

nge

20

25

30

35

40

45

50

55

60

65

Jan-01

Jul-0

1Jan-02

Jul-0

2Jan-03

Jul-0

3Jan-04

Jul-0

4Jan-05

Jul-0

5Jan-06

Jul-0

6Jan-07

Jul-0

7Jan-08

Jul-0

8Jan-09

Jul-0

9Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Inde

x Val

ue

Months

Purchasing Managers Index

Institute of Supply Management

90,000

95,000

100,000

105,000

110,000

115,000

120,000

125,000

130,000

2001M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Months

Manufacturing Employment

Actual Projected

Num

ber o

f Em

ploy

ees



Leisure and hospitality services employment in the Valley reached 120,000 in 2015 and is projected to reach 130,000 by the second half of 2017. The trend that has formed post-recession is now the steepest since 2001. u Leisure and hospitality services employment was the second-fastest-growing category of employment in 2015, surpassing construction employment, which had led all categories of employment since the end of recession. Leisure and hospitality services employment’s 4.22 percent growth in 2015, although less than 2014, still was high enough to exceed all other categories of employment except trade, transportation and utilities.

The fastest growth in leisure and hospitality services employment occurred in 2014 at 5.94 percent, while the 2015 growth u was at 4.22 percent. Growth in previous years was significantly greater than the series’ sample benchmark growth of 2.19 percent, underscoring robust employment in this sector. Such strong performance year-after-year classifies the leisure and hospitality services employment as another category of employment in which the Valley now maintains a competitive advantage. Projections in this category of employment point to an annual average growth of 4.51 percent in 2016 and 4.26 percent in 2017, about the same pace as in 2015.

Trade, transportation and utilities employment climbed from being the third-best-performing category of employment in 2014 to the fastest-growing category in 2015. Employment growth continued to display a steeper trend post-recession. Trade, transportation and utilities is one category of employment in which the Valley has a competitive edge. The year 2015 was exceptional for this category of employment, growing at three times the series’ sample benchmark rate of 1.55 percent. u

80,000

90,000

100,000

110,000

120,000

130,000

140,000

2001M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Months

Leisure and Hospitality Services Employment

Num

ber o

f Em

ploy

ees

Actual Projected


Annu

al G

row

th

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

2.19%

5.15%

5.94%

4.22%

5.07% 4.84%4.51% 4.26%3.96% 3.67%

Leisure and Hospitality Services Employment: Historical vs. Projected Average Yearly Growth

Months

Num

ber o

f Em

ploy

ees

190,000

210,000

230,000

250,000

270,000

290,000

310,000

2001M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Trade, Transportation and Utilities Employment

Actual Projected


Projections point to slightly slower growth in the next two years, more in line with the structural growth rate. However, strong growth in this category of employment will continue into 2016 and 2017. Trade, transportation and utilities employment is projected to grow at 3.67 percent in 2016 and 3.20 percent in 2017 as other costs associated with this sector, such as the price of oil, begin to rise. u

Retail trade employment continued to perform strongly in 2015. Each year, growth in this sector was more than the sample benchmark growth rate of 1.55 percent. This was not an exception in 2015. In fact, growth in retail activity is visible to the eye in almost every city in the Valley. The post-recession trend continues to remain steeper than what prevailed before the recession. Employment in this category likely will reach 160,000 by the first half of 2017. u

Retail trade employment grew slightly faster in 2015 than 2014. In the coming two years, average annual growth in this category will continue to remain above 3.0 percent. The diversity of retail establishments also is widening, permitting Valley consumers to enjoy greater choices than before. The Valley now faces increased competition among retail establishments, which benefits consumers in the form of lower prices and higher quality. Projections point to growth of 3.33 percent in 2016 and 3.04 percent in 2017. u

...growth in retail activity is visible to the eye in almost every city in the Valley.


0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

1.55%

3.76%

2.44%

5.00%

4.01%3.52%3.67%

3.20%3.32%2.88%

Trade, Transportation and Utilities Employment: Historical vs. Projected Average Yearly Growth

Aver

age G

row

thNu

mbe

r of E

mpl

oyee

s

100,000

110,000

120,000

130,000

140,000

150,000

160,000

170,000

180,00020

01M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Retail Trade Employment

Actual Projected

Months

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

1.13%

3.60%

3.12% 3.18%

3.69%3.35%3.33%

3.04%2.98%2.73%

Retail Trade Employment: Historical vs. Projected Average Yearly Growth


Annu

al G

row

th



Wholesale trade employment was the fifth-fastest-growing category of employment u in 2015. Employment in this category is projected to reach 50,000 by the first quarter of 2017. Wholesale trade employment grew less than retail trade employment in 2015. From a structural standpoint, however, wholesale trade employment normally grows faster than the retail trade employment. Because of the negative impact of drought, the picture was reversed. Farm-related wholesale trade employment performed less than retail trade employment.

At 2.46 percent, wholesale trade employment grew faster in 2015 than the previous year, during which the average yearly growth was only 1.71 percent. The fastest growth u in the last three years occurred in 2013, when the series posted a 4.27 percent average yearly growth. The growth in 2015 however, was slightly above the series’ sample average yearly growth rate of 2.19 percent. Given these oscillations, wholesale trade employment is projected to grow at a yearly average rate of 2.99 percent in 2016 and 2.68 in 2017.

As predicted in previous reports, growth in information employment switched from negative to positive territory in 2015. The turning point that occurred in the third u quarter of 2014 now appears to be permanent. Information employment most likely will reach 11,500 in the Valley by the third quarter of 2016 as back-to-back declines of previous years are replaced by improvements in this category. The hyperbolic pattern that has existed in the past is now replaced by steepening trend following the fourth quarter of 2014.

Num

ber o

f Em

ploy

ees

Months

30,000

35,000

40,000

45,000

50,000

55,000

2001M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Wholesale Trade Employment

Actual Projected

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

2.19%

4.27%

1.71%

2.46%

3.50%3.22%

2.99%2.68%

2.48%2.13%

Wholesale Trade Employment: Historical vs. Projected Average Yearly Growth


Annu

al G

row

th

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

2001M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Information Employment

Months

Num

ber o

f Em

ploy

ees

Actual Projected

Wholesale trade employment grew less than retail trade employment in 2015.


-2.50%-2.00%-1.50%-1.00%-0.50%0.00%0.50%1.00%1.50%2.00%2.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

-1.98% -1.16% -1.25%

0.56%

1.80% 2.10%1.56%

1.83%1.31% 1.56%

Information Employment: Historical vs. Projected Average Yearly Growth

Annu

al G

row

thActual Optimistic Most Likely Pessimistic

35,000

45,000

55,000

65,000

75,000

85,000

95,00020

01M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Construction Employment

Num

ber o

f Em

ploy

ees

Months

Actual Projected

-1.00%0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

-0.11%

7.32%

4.65%

3.08%3.74%

3.03%2.83%2.21%1.93%

1.40%

Construction Employment:Historical vs. Projected Average Yearly Growth


Annu

al G

row

th

When compared with the sample benchmark growth rate of -1.98 percent, the 0.56 percent growth registered in 2015 appears to be quite significant. Further, the two previous years also posted significant declines at -1.16 percent and -1.25 percent, respectively. Information employment u had been continuously declining since 2008, with the exception of 2015. To observe such a turning point becoming now permanent is encouraging for future growth. Given this turn of events in information employment, projections point to more significant growth at 1.56 percent in 2016 and 1.83 percent in 2017.

Until 2015, construction employment u was the fastest-growing category of employment in the Valley. Construction employment, however, fell from 4.65percent growth in 2014 to 3.08 percent in 2015. When compared with post-recession activity, the Valley’s overall construction employment growth is now displaying much more subtle growth. Noteworthy is the dispersion in growth by county. Kern County reported a -3.68 percent decline in construction employment, while Tulare and San Joaquin Counties reported 16.50 and 10.46 percent average yearly growth, respectively. Nationwide, construction employment increased 4.39 percent in 2015. The increase in construction employment statewide was 6.73 percent.

An active rental market and limited supply puts upward pressure on rents. At the same time, higher demand for rentals means u demand for buying homes is relatively low. Projections point to 2.83 percent average yearly increase in construction employment during 2016 and 2.21 percent during 2017.



Government employment grew in 2015 at about the same rate as the previous year. Employment in this category is projected to reach pre-recession levels by the second half of 2017, totaling 280,000 for the Valley. As such, government employment carves up a larger chunk of total employment at about 17.1 percent. Thus, government employment and spending is one of the main drivers of the Valley economy. u

The post-recession trend in government employment is almost identical to the trend that prevailed before the recession. Although many categories of employment completely recovered after the recession, exceeding employment levels that existed before the recession, this is not the case for government employment, which in the Valley is deficient by about 20,000. Government employment is projected to grow 1.81 percent in 2016 and 1.54 percent in 2017. u

210,000

220,000

230,000

240,000

250,000

260,000

270,000

280,000

290,000

2001M01

2001M08

2002

M03

2002

M10

2003

M05

2003

M12

2004

M07

2005

M02

2005

M09

2006

M04

2006

M11

2007

M06

2008

M01

2008

M08

2009

M03

2009

M10

2010M05

2010M12

2011M07

2012M02

2012M09

2013M04

2013M11

2014M06

2015M01

2015M08

2016M03

2016M10

2017M05

2017M12

Government Employment

Num

ber o

f Em

ploy

ees

Months

Actual Projected

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

0.49%

-0.13%

2.02% 1.96% 1.99%1.71%1.81%

1.54%1.63%1.37%

Government Employment: Historical vs. Projected Average Yearly Growth


Annu

al G

row

th...government employment and spending is one of the main drivers of the Valley economy.

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

-0.33%

0.51%

-0.95%

1.30%

1.80% 1.96%1.58% 1.79%

1.36%1.62%

Financial Activities Employment:Historical vs. Projected Average Yearly Growth

Annu

al G

row

th



37,000

39,000

41,000

43,000

45,000

47,000

49,000

51,000

2001M01

2001M07

2002

M01

2002

M07

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010M01

2010M07

2011M01

2011M07

2012M01

2012M07

2013M01

2013M07

2014M01

2014M07

2015M01

2015M07

2016M01

2016M07

2017M01

Financial Activities Employment

Num

ber o

f Em

ploy

ees

Months

Actual Projected

The decline in financial activities employment came to a halt in 2015 when the series posted a 1.30 percent average yearly growth. When compared with previous years, 2015 growth was quite significant. Financial activities employment was the only category of employment that continued to suffer since the end of the recession. Given the growth in 2015, employment in this category does not appear to be suffering any longer. The turning point that has formed in 2015 seems to be permanent. Employment in this category most likely will reach 43,000 by the first quarter of 2017. u

The sample benchmark yearly growth rate of the series still remains negative at -0.33 percent. In 2013, financial activities employment grew at a very trivial rate of 0.51 percent, then in 2014 posted a decline at -0.95 percent. When compared with these rates, the 1.30 percent growth in 2015 was noteworthy. Projections point to faster growth in financial activities employment at an average rate of 1.58 percent in 2016 and 1.79 percent in 2017. u

Valley total employment grew faster in 2015 than the previous year. Unlike 2014, all counties grew, but at varying speeds. Fresno County employment grew the fastest. Merced County no longer led employment growth in the Valley, posting the second-fastest growth. Madera and Kern counties grew the least. Stanislaus and San Joaquin counties grew at about the Valley average. Construction no longer was the leading category of employment in 2015, being surpassed by leisure and hospitality services. Construction fell from the first to the fourth spot among all other categories of employment growth. Financial activities employment was the only category of employment that had continued to suffer since the end of the recession, but it posted significant growth in 2015, therefore ending the classification as a suffering category of employment. All categories of employment grew in 2015.

Housing Sector


The Valley aggregate for single-family building permits is composed of the eight Metropolitan Statistical Areas (MSAs) of the San Joaquin Valley: Bakersfield-Delano, Fresno, Hanford-Corcoran, Madera-Chowchilla, Merced, Modesto, Stockton and Visalia-Porterville. u

Fresno led the Valley with the most housing permits issued in 2015, totaling 1,414, followed by Bakersfield-Delano and Stockton at 1,114 and 974 newly issued housing permits, respectively. Hanford-Corcoran had almost no housing permits issued, while Modesto and Merced had only 31 and 50 newly issued permits, respectively, by August 2015. Valley-wide, single-family building permits stayed mostly above 500 per month. There were 4,543 Valley permits issued by August 2015.

At 5.66 percent in 2015, the growth in housing permits was almost identical to the u 5.78 percent increase in 2014. These single-digit rates reflect sustainable growth, as opposed to the 33.51 percent spike in 2013. Because interest rates are expected to increase in the near term, growth in Valley housing permits is projected to be lower than the previous two years. Projections point to 5.25 percent and 3.87 percent growth in 2016 and 2017, respectively.

Foreclosure starts are at their lowest occurrence since 2005. The increase that occurred in the fourth quarter of 2014 turned out to be only temporary, as foreclosure starts in the following quarters continued to decline in response to the drop in long-term interest rates. Low interest rates that have continued to prevail since the end of the recession have caused foreclosure starts to decline year-over-year. Given the expected increases in interest rates, however, foreclosure starts are expected to rise only slightly from their new lows, not to reach the exceptional levels of the recession years. u

The Freddie Mac 30-year fixed rate fell below 4.0 percent in the summer of 2014 and stayed low until the end of the second quarter of 2015. In the summer of 2015 the market’s expectation of a hike in interest rates negatively affected U.S. stock markets, which posted a serious fall in global market indexes in

-10.00%

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

-7.47%

33.51%

5.78% 5.66%7.67% 6.03%5.25% 3.87%2.84% 1.71%

Annu

al G

row

th


Single Family Building Permits:Historical vs. Projected Average Yearly Growth

0

0.5

1

1.5

2

2.5

1993

M11

1994

M08

1995

M05

1996

M02

1994

M11

1997M08

1998

M05

1999

M02

1999

M11

2000

M08

2001M05

2002

M02

2002

M11

2003

M08

2004

M05

2005

M02

2005

M11

2006

M08

2007

M05

2008

M02

2008

M11

2009

M08

2010M05

2011M02

2011M11

2012M08

2013M05

2014M02

2014M11

Perc

enta

ge

Foreclosure Starts in California

Bankers Association of America

Months

500

1,000

1,500

2,000

2,500

3,000

3,500

2004

M01

2004

M06

2004

M11

2005

M04

2005

M09

2006

M02

2006

M07

2006

M12

2007

M05

2007

M10

2008

M03

2008

M08

2009

M01

2009

M06

2009

M11

2010M04

2010M09

2011M02

2011M07

2011M12

2012M05

2012M10

2013M03

2013M08

2014M01

2014M06

2014M11

2015M04

2015M09

2016M02

2016M07

2016M12

2017M05

2017M10

Single Family Building Permits

Num

ber o

f Per

mits

Months

Actual Projected


August 2015 as those worries were coupled with concerns about a recession hitting China and other emerging markets. u

The Federal Reserve’s ultimate objective is price stability. Maintaining stable prices minimizes business uncertainty and as a result investors can look to the future and make investment plans. This, in turn, creates a positive business environment that leads to maximization of economic growth.

Given that inflation remains very low at the moment, modest economic growth and the added worries of deflation combine to dissuade the Federal Reserve from increasing interest rates in the next couple of months. However, upward pressures may mount in the first half of 2016, when new data on inflation may alter the Federal Reserve’s decision to keep interest rates low.

Home prices continued to increase in 2015, u but at rates lower than 2014. Valley home prices appreciated 6.51 percent in 2015, less than half the rate of the appreciation in 2014, which was at 15.17 percent. This growth in housing prices was in line with our prediction of slower but more sustainable growth in Valley home values to take place over the next couple of years. Home values gained the most in Stanislaus County at 8.78 percent in 2015, followed by Merced County at 7.57 percent and San Joaquin County at 7.17 percent. All counties posted greater than 5.0 percent growth in 2015.

The long-term benchmark rate of appreciation for Valley homes stands at an average yearly rate of 4.62 percent. Growth in housing prices approached this rate when the series posted a 6.51 percent gain during the first eight months of 2015. Such a pattern in housing prices is likely to continue into 2016 and 2017, settling to a steady rate consistent with the benchmark growth rate more representative of what the growth in this series will be like in the long term. Valley home values are projected to grow at an average yearly rate of 4.80 and 5.11 percent in 2016 and 2017, respectively, as interest rates slowly begin to rise in the forecast interval and housing prices adjust accordingly. u

3

4

5

6

7

8

9

10

1993

M10

1994

M06

1995

M02

1995

M10

1996

M06

1997M02

1997M10

1998

M06

1999

M02

1999

M10

2000

M06

2001M02

2001M10

2002

M06

2003

M02

2003

M10

2004

M06

2005

M02

2005

M10

2006

M06

2007

M02

2007

M10

2008

M06

2009

M02

2009

M10

2010M06

2011M02

2011M10

2012M06

2013M02

2013M10

2014M06

2015M02

Perc

enta

ge

30 -Year Fixed Rate

Freddie Mac

MonthsPe

rcen

tage

Cha

nge O

ver t

he P

revi

ous Y

ear

-40

-30

-20

-10

0

10

20

30

40

2000

q120

00q3

2001q1

2001q3

2002

q120

02q3

2003

q120

03q3

2004

q120

04q3

2005

q1

Actual Projected

2005

q320

06q1

2006

q320

07q1

2007

q320

08q1

2008

q320

09q1

2009

q320

10q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

2014q3

2015q1

2015q3

2016q1

2016q3

2017q1

2017q3

Quarters

Yearly Percentage Change in Housing Prices

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

4.62%

13.76%15.17%

6.51% 5.79% 5.96%4.80% 5.11%

3.81% 4.26%

Yearly Growth in Housing Prices: Historical vs. Projected Average Yearly Growth

Annu

al Y

early

Gro

wth


Inflation and Prices


Inflation continued to stay at very low rates in 2015, which was the main reason the Federal Reserve delayed the decision to raise interest rates. Cost-push factors on inflation were not all present due to the low price of oil. Demand-pull factors also were absent in 2015, further keeping inflation from increasing.

Noteworthy is the increase in inflation u in the West Coast relative to the national average. The discrepancy was the widest since 2001. During 2015, inflation rates in the West stayed above 1.0 percent, while nationwide they were near zero. Such a pattern provides strong evidence that the aggregate demand is expanding much faster in California than the rest of the nation.

The lowest increase in the overall level of prices since the first quarter of 2013 was registered in 2015. Given the low price of oil that has continued to prevail for some time, the benchmark inflation over the entire sample has dropped to 2.24 percent. Yearly inflation rates since 2013 all registered below this long-term inflation rate, creating deflationary fears. However, the price of oil is expected to rise in the latter part of 2016. u

Appreciation in the domestic currency also partially has an affect on inflation rates remaining low, as imported goods become cheaper to purchase by Valley consumers. Because appreciation has a negative effect on Valley exports, appreciation in the dollar also takes away the impact of demand-pull factors on inflation. Projections point to an average annual increase in overall level of prices on the West Coast of 1.61 percent in 2016 and 1.95 percent in 2017. u

-2.5

-1.5

-0.5

0.5

1.5

2.5

3.5

4.5

5.5

2001M01

2001M07

2002

M01

2002

M07

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010M01

2010M07

2011M01

2011M07

2012M01

2012M07

2013M01

2013M07

2014M01

2014M07

2015M01

2015M07

Inflation Rate: Nationwide vs. West

Year

ly In

flatio

n Ra

teMonths

West National

-3

-2

-1

0

1

2

3

4

5

6

2001M01

2001M07

2002

M01

2002

M07

2003

M01

2003

M07

2004

M01

2004

M07

2005

M01

2005

M07

2006

M01

2006

M07

2007

M01

2007

M07

2008

M01

2008

M07

2009

M01

2009

M07

2010M01

2010M07

2011M01

2011M07

2012M01

2012M07

2013M01

2013M07

2014M01

2014M07

2015M01

2015M07

2016M01

2016M07

2017M01

2017M07

U.S. West Inflation Rate

Actual Projected

Months

Year

ly P

erce

ntag

e Cha

nge

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

2.24%

1.50%

1.86%

1.07%

1.83%

2.12%

1.61%

1.95%

1.39%

1.79%

U.S. West Inflation Rate: Historical vs. Projected Average Yearly Growth

Year

ly P

erce

ntag

e Cha

nge


Noteworthy is the increase in inflation in the West Coast relative to the national average.


Nominal average weekly wages u in the Valley grew faster than the rate of inflation in 2014 and 2015. As real wages rose, Valley consumers were able to afford more bundles of goods than they did before, and in proportion to the increase in real wages and salaries. Low inflation also helped maintain purchasing power. Because employment growth exceeds labor force growth in the Valley, labor markets have tightened further in 2015, putting upward pressure on wages and salaries. Average weekly wages will continue to rise slightly above the inflation rate in 2016 and 2017.

The discrepancy between average weekly wage growth and the inflation rate turned in favor of wages in 2014. In 2015, this discrepancy widened when the average yearly rate of inflation turned out to be lower than 2014. The Valley’s average weekly wages are likely to increase further in the following two years, staying above the inflation rate. Average weekly wages are projected to increase 2.54 percent in 2016 and 3.08 percent in 2017. u

Following the second quarter of 2014, average weekly wages began to grow faster and the average yearly inflation rate began to fall. The difference was at a maximum in the fourth quarter of 2014, when average weekly wages posted 3.95 percent yearly growth. The yearly inflation rate registered 1.3 percent, causing real wages to go up by 2.65 percent. The increase in real wages was the highest registered in the past seven years. In 2015, wages grew at a slightly slower rate and inflation continued to fall. Due to the absence of cost-push factors and tightening labor markets, such a pattern in favor of wages likely will continue in the coming months. u

Quarters

450

500

550

600

650

700

750

800

850

900

950

2001q1

2001q4

2002

q3

2003

q2

2004

q1

2004

q4

2005

q3

2006

q2

2007

q1

2007

q4

2008

q3

2009

q2

2010q1

2010q4

2011q3

2012q2

2013q1

2013q4

2014q3

2015q2

2016q1

2016q4

2017q3

Quarterly Average Weekly Wages

Actual Projected

Aver

age W

eekl

y Wag

e

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

2.78%

0.43%

2.48%

3.27%

2.72%

3.16%

2.54%

3.08%

2.36%

3.00%

Weekly Wage Growth: Historical vs. Projected Average Yearly Growth

Aver

age Y

early

Gro

wth


-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2002

q120

02q3

2003

q120

03q3

2004

q120

04q3

2005

q120

05q3

2006

q120

06q3

2007

q120

07q3

2008

q120

08q3

2009

q120

09q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

2014q3

2015q1

Quarters

Inflation Wage Growth

Yearly Wage Growth vs. Inflation

Aver

age P

erce

ntag

e Cha

nge

Banking and Capital Markets


Above-average employment growth in the Valley, combined with rising real wages, increased total bank deposits quite significantly in 2015 relative to the previous years. Increasing retail trade activity also was consistent with the Valley’s increase in total bank deposits. u

The Valley’s total bank deposits in 2015 registered twice the growth rate observed in 2014, at an average annual growth of 10.29 percent in 2015 and 5.41 percent in 2014. Strong growth in the Valley’s total bank deposits is expected to continue in the coming two-year period. The increase in financial activities employment in 2015 likely was the result of increased demand for jobs in this category caused by significant increases in total bank deposits and net loans and leases in 2015 relative to previous years. Valley total bank deposits are projected to grow at an average annual rate of 7.62 percent in 2016 and 5.48 percent in 2017. u

In 2015, bank assets in nonaccrual continued to fall despite significantly higher net loans and leases in the Valley. The small blip in nonaccruals was due to a temporary increase in interest rates during the same time interval, which corresponded to the fourth quarter of 2014 and first quarter of 2015, reflecting the lagged response of defaults to an increase in interest rates. Nonaccruals have returned to the levels that existed in 2007. u

In response to the increase in 30-year interest rates during the fourth quarter of 2014, assets in default 30 to 89 days spiked temporarily. Naturally, assets in default 90-plus days responded with a longer lag to the rise in long-term interest rates during the same period. However, both came down

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

2003

q120

03q3

2004

q120

04q3

2005

q120

05q3

2006

q120

06q3

2007

q120

07q3

2008

q120

08q3

2009

q120

09q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

2014q3

2015q1

2015q3

2016q1

2016q3

2017q1

2017q3

Actual ProjectedQuarters

Total Bank Deposits (in $ Thousands)

Tota

l Dep

osits

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

6.96%

4.56%5.41%

10.29%8.44%

6.31%7.62%

5.48%6.80%

4.65%

Total Deposits:Historical vs. Projected Average Yearly Growth

Aver

age Y

early

Gro

wth


-

50,000

100,000

150,000

200,000

250,000

2003

q220

03q3

2003

q420

04q1

2004

q220

04q3

2004

q420

05q1

2005

q220

05q3

2005

q420

06q1

2006

q220

06q3

2006

q420

07q1

2007

q220

07q3

2007

q420

08q1

2008

q220

08q3

2008

q420

09q1

2009

q220

09q3

2009

q420

10q1

2010q2

2010q3

2010q4

2011q1

2011q2

2011q3

2011q4

2012q1

2012q2

2012q3

2012q4

2013q1

2013q2

2013q3

2013q4

2014q1

2014q2

2014q3

2014q4

2015q1

2015q2

Quarters

Assets in Nonaccrual

Federal Deposit Insurance Corporation

Thou

sand

Dol

lars

Strong growth in the Valley’s total bank deposits is expected to continue in the coming two-year period.


following the drop in the 30-year rates in the following quarters.

Valley net loans and leases exhibited u exceptional growth together with total bank deposits in 2015. Strong growth in two categories by community banks is indicative of bank deposits being increasingly channeled into loans and leases in the Valley. Further, the pattern observed in these two series is consistent with the view that the funds deposited in the Valley appear to be staying in the Valley, as they should. An outflow of these funds otherwise would jeopardize the Valley’s economic growth.

Valley net loans and leases increased 10.14 percent in 2014. Yearly growth in net loans and leases was even higher in 2015 at 16.35 percent. However, average growth over the long run for the Valley in this category stands at 6.36 percent. Projections point to growth more in line with the long-run average rate, at 11.38 percent in 2016 and 8.87 percent in 2017. u

As the Federal Reserve begins to increase

interest rates in 2016, nonaccruals along with assets in default are expected increase a bit. Valley bank profits are expected to rise following the increase in interest rates. Total bank deposits and net loans and leases are projected to post yearly growth at above long-run average rates. u

-

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2003

q2

2003

q4

2004

q2

2004

q4

2005

q2

2005

q4

2006

q2

2006

q4

2007

q2

2007

q4

2008

q2

2008

q4

2009

q2

2009

q4

2010q2

2010q4

2011q2

2011q4

2012q2

2012q4

2013q2

2013q4

2014q2

2014q4

Quarters

Assets in Default 30 + Days

Assets in Default 30-89 Days Assets in Default 90+ Days * 10

Thou

sand

Dol

lars

3,300,000

4,300,000

5,300,000

6,300,000

7,300,000

8,300,000

9,300,000

10,300,000

2003

q120

03q3

2004

q120

04q3

2005

q120

05q3

2006

q120

06q3

2007

q120

07q3

2008

q120

08q3

2009

q120

09q3

2010q1

2010q3

2011q1

2011q3

2012q1

2012q3

2013q1

2013q3

2014q1

2014q3

2015q1

2015q3

2016q1

2016q3

2017q1

Net Loans & Leases (in $ Thousands)

Net L

oans

& Le

ases

Actual ProjectedQuarters

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%18.00%

SampleAverage

2013Average

2014Average

2015Average

2016Forecast

2017Forecast

6.36% 7.13%

10.14%

16.35%

12.73%

9.86%11.38%

8.87%10.03%

7.87%

Year

ly G

row

th

Net Loans & Leases:Historical vs. Projected Average Yearly Growth


Valley bank profits are expected to rise following the increase in interest rates.


DisclaimerAlthough information in this document has been obtained from sources

believed to be reliable, we do not represent or warrant its accuracy, and such

information may be incomplete or condensed. This document does not constitute

a prospectus, offer, invitation or solicitation to buy or sell securities and is not

intended to provide the sole basis for any evaluation of the securities or any other

instrument which may be discussed in it. All estimates and opinions included

in this document constitute our judgment as of the date of the document and

may be subject to change without notice. This document is not a personal

recommendation, and you should consider whether you can rely upon any

opinion or statement contained in this document without seeking further advice

tailored for your own circumstances. This document is confidential and is being

submitted to selected recipients only. It may not be reproduced or disclosed (in

whole or in part) to any other person without our prior written permission. Law

or regulation in certain countries may restrict the manner of distribution of this

document, and persons who come into possession of this document are required

to inform themselves of and observe such restrictions. We, or our affiliates, may

have acted upon or have made use of material in this document prior to its

publication. You should seek advice concerning any impact this investment may

have on your personal tax position from your own tax adviser.

Valley total employment grew at a higher rate in 2015 than the previous year. Despite drought, total employment grew significantly above average. Unlike 2014, all counties posted employment growth in 2015. Employment in Fresno and Merced counties grew the fastest. Madera County employment also grew in 2015, but it was quite small compared with other counties.

Dynamics in employment growth changed in 2015. The growth in construction employment was the fourth fastest. Trade, transportation and utilities employment grew the fastest, followed by leisure and hospitality services employment and retail trade employment. Financial activities employment improved significantly from the year before. Manufacturing employment grew above national and state growth rates. Unlike previous years, 2015 was a year in which all categories of employment improved from the previous year.

Housing prices increased further, but at a slower rate than previous years and more in line with the long-run average growth rate of the series. Projections point to growth in housing values in single digits, about the same rate as the long-run average rate in the next two years. Housing permits also began to increase at rates more consistent with the 10-year benchmark rates, thus exhibiting more balanced growth.

In 2015, inflation rates nationwide were near zero, but on the West Coast the rise in the average level of prices was about 1.2 percent. Average weekly wages posted a significant increase above the inflation rate in 2015, consistent with tightening labor markets. Average weekly wages are projected to increase faster than the inflation rate in the next two years.

Valley bank deposits and net loans and leases posted exceptional growth in 2015. Nonaccruals in 2015 declined

to the levels that existed in 2007 despite a temporary blip in the first quarter of 2015, resulting from an increase in 30-year rates from the previous quarter that proved to be only temporary. However, as the Federal Reserve begins to increase

interest rates in 2016, nonaccruals and accruals past due are expected to increase, depending on the extent of the increase in interest rates. Nevertheless, 2015 was a strong year for the financial sector, whereby despite the strong increases in net loans and leases accruals kept on decreasing further.

Overall, the Valley economy adapted exceptionally well to the four-year drought and displayed above-average performance. The projections point to the prevalence of similar upbeat economic dynamics in the two-year forecasting interval. ly

Concluding Remarks

Unlike 2014, all counties posted employment growth in 2015.

© 2015 California State University, Stanislaus

san joaquin valley business forecast … · from the full 12 months. ... westward growth. the only...

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