Outlook for Sonoma County shows slower growth more likely than recession, says UCLA economist
Sonoma County appears poised for a period of slower economic growth, as labor woes continue to impact employers, persistent inflation cuts into consumer spending power and interest rate hikes cool the nation’s economy, a top California economist said Thursday.
Jerry Nickelsburg, a senior economist and director of the UCLA Anderson Forecast, said, however, he does not see signs of a recession in 2023, citing underlying strengths of the economy and multiple signs of recovery.
He spoke before more than 300 attendees at the Sonoma County Economic Development Board’s 2023 State of the County Conference at Rohnert Park’s Doubletree Hotel.
“We must be careful when making predictions and determine what’s really going on before coming away with a road map for what to do,” he said. “The last few years have been weird, even strange, but the economy is adjusting, evidenced by 2.9% real GDP (gross domestic product) growth” announced Thursday, he said.
In Sonoma County, Nickelsburg noted that the county’s labor force, hollowed out in 2020 by the pandemic, has steadily grown since January 2021 — though it is still below its previous 2019 peak.
The county’s unemployment rate was 2.5% in December compared to 3.5% for the nation and 4% for California.
Labor figures cited by Nickelsburg showed employment grew 4% in the past fiscal year, 2021-22, with gains in health care and leisure and hospitality (each adding 2,000 jobs), followed by construction (+1,100), retail (+700), administrative services & agriculture (+600 each) and scientific and business services (+400 each) and manufacturing (+100).
However, the transportation, warehousing and finance sectors each lost approximately 100 jobs, his presentation showed.
Nickelsburg alluded to the worker recruitment and retention issues vexing public and private sector employers — amounting to what he called “labor force constrained growth — and an especially heavy weight on a local economy dependent driven by tourism and the wine and beer industries.
His two-year outlook for Sonoma County also focused on real personal income, or how much money an individual or entity makes after accounting for inflation. That figure is estimated to grow to 2.5% in 2024. At the same time, employment growth is projected to increase 0.5% in 2023 and to 1.8% in 2024.
Nickelsburg also alluded to the role Mother Nature plays in the regional economic outlook, citing the impact of recent storms.
“I saw a Washington Post article saying: ‘After many years of devastating drought, California vineyards were thirsty and the recent series of historic rains were a dream come true,’” Nickelsburg said.
In terms of real gross domestic product (GDP) in 2012 dollars, the value of goods and services in the U.S. economy rose from $19 trillion in 2019 to $20 trillion in 2021 at a seasonally adjusted annual rate — with a significant dip between 2019-2021 due to the pandemic.
Nickelsburg said that even under a recession scenario, he anticipates GDP growth will continue to ramp up to just under $21 trillion in 2024, but at a slightly slower pace. GDP measures the monetary value of final goods and services produced in a country during a given period.
The Federal Reserve, he noted, is expected to continue hiking interest rates to slow inflation, while guarding against a scenario where too many hikes over a short period trigger a recession.
He pointed to historical data showing cases where fewer rate hikes and longer intervals between increases have led to soft economic landings. Nickelsburg noted that it depends on how many quarters follow a Fed rate hike. If inflation shows signs of subsiding, often rates can be lowered without a return to an overheated economy.
Looking at the relationship between jobs and recovery, Nickelsburg said California’s nonfarm payroll jobs from 2017-2022 continued to rise from about $16.7 million to $17.9 million before sustaining a -16% decline in 2020 (to below $15 million). Since then, this job category has rebounded to a level +0.4% above the pre-2020 mark as of December 2022.
Nationally, the most positive job growth changes from February 2020 to December 2022 occurred in six sectors including transportation, warehousing and utilities; health care and social services; professional, scientific and technology fields; administration and services; as well as construction and information.
Negative growth during the same time frame was seen mostly in the leisure and hospitality area with a loss of over 110,000 jobs followed by other services, retail and wholesale trade jobs, state and local jobs (excluding education), and finance positions, along with 5 other sectors.
“People are worried that the recent ballooning of tech layoffs and see this as a harbinger of bad things to come, but layoffs are not the “canary in the coal mine,” according to Nickelsburg.
Housing prices have remained high. However, this appears to be tapering off with the median home price in San Francisco declining in December 2022 from near $900,000 to approximately $780,000. At the same time, new single family home sales fell from a high of 500,000 to 248,000 units.
Home construction in California has slowed, based on year over year building permit records indicating there was a more than a 10% drop in permit applications from September to November 2022.