Recession unlikely in California Wine Country, US in the next 2 years, economist says
The San Francisco North Bay area's economic future may not be gangbusters, but thus far it doesn't look like it is headed for a recession, according to an economist's forecast Thursday at the 27th annual Sonoma State University Economic Outlook Conference.
Robert Eyler, Ph.D., dean of the School of Extended and International Education and a professor of economics at SSU, spoke on the Rohnert Park campus at the North Bay Business Journal event attended by about 250 people.
There could be a bit of a fade in the economy next year, but Eyler said a recession is unlikely before 2023. A measure of economic vitality, the gross domestic product, looks to offer “not shocking historic growth, but not bad.”
Current data suggests that the GDP is expected to grow by 1.8% this year, increasing to 2% the next two years. He said business has continued to greet the nation's lower interest rate not with a big burst of capital spending, but with a shrug.
As for the U.S. Treasury, the Great Recession plunged the country into a huge deficit-spending hole in 2009 and 2010. Gradually afterwards, that trend started to reverse. Now, that deficit valley is starting to deepen again as projections show it continuing to increase through 2030.
In the future, business debt and household debt levels are something to watch, as will be the Federal Reserve, which he predicted would takes its finger off the “pause” button this summer and trigger one or two rate cuts.
Another business marker - inflation - is stubbornly low. That may sound like a plus, except that as costs rise, a lower inflation rate does not give businesses the opportunity to raise prices as much to compensate, he told the crowd.
Eyler said unemployment will continue to be low - but that alone is not driving a huge jump in the general economy, because the jobs being added are lower-paying service jobs. His charts showed national unemployment rates are expected to be 3.7% through 2021 then a slight uptick in 2022 to 3.9%.
As for job growth and its future in the North Bay, Eyler noted the historic trend in the area has been to have seasonal growth - such as harvest in the wine industry - which produces spikes in job growth. Tourism followed a similar pattern.
In an area of high housing costs, Eyler produced charts showing the wide range price spread. Average rents in Marin County are $3,653 a month, $2,642 in Sonoma, and $1,408 in Lake County. California's average rent is $2,529 a month.
On construction, Eyler said the bubble created by the pressing need to rebuild homes after the fires of 2017, and even 2018, has begun to ebb, but the industry continues to be robust. Going forward, it will be a telling trend if developers can continue to make the math work for new projects.
Further on tourism, Eyler said the future growth of tourism will be depend in part on external factors: Will there be more significant wildfires and, as a result, more use of widespread planned power outages? Each unknown, if it occurs, could create public relations issues and visitors turning away. Other speakers at the conference pointed out similar trends in that industry.
On the wine industry, he said the documented oversupply of grapes and the decline in some prices for grapes is but one of the issues the industry faces. The other is whether millennials will be interested in embracing the fine-wine culture of their parents.
There's been much attention, he said, to the idea that the North Bay is losing population. Indeed, Eyler said Sonoma County saw its population decline by about 3,500 people in the last two years, continuing a dip that began in 2015.
Napa County's population declined 1,000 last year, while Marin saw a migration of about 1,500. Examined on a longer curve, say over 10 years, most areas are actually up 2.5%-3%, he said.
But there are signs of shifting tides. For example, in Napa County the number of deaths is exceeding the number of births. It's a sign, he said, of an aging population in which younger people cannot afford to live there.
His vision of the North Bay's economic future included what it will be like in the area of employment, both employment of humans, and in the nonhuman – or robotic workforce.
For humans, he wondered what will happen as the area's continually aging workforce decides to work longer. And, as more and more jobs are service-based, what that means for younger people who want those jobs as well.
For the ever-changing field of robotics, the economist also envisions machines assuming larger roles. Perhaps even, he said, machines on a construction site doing framing of homes. It will be costly or unreliable labor that will eventually trigger business to expend the capital needed to install machines, he said at the conference, sponsored by Exchange Bank and Compass Real Estate.
“Believe me: It is coming,” Eyler said.
