Why economists are brightening their outlooks on 2024 and what’s in store for the North Bay

It now appears more likely that the nation, California and the six North Bay counties will dodge a recession that was feared to result from the “rolling window of pain” in the economy over the past three years that has come with high prices and central bankers’ efforts to combat that inflation via higher interest rates, a local economist told a conference of business and civic leaders in Rohnert Park Thursday.

“Bottom line, no recession is predicted” in the next 12 to 18 months, Sonoma State University economist Dr. Robert Eyler told the audience of about 180 at North Bay Business Journal’s Economic Outlook 2024 Summit in the campus student center.

The event also featured speakers discussing the impact of artificial intelligence on the economy, education and society.

Eyler said economists who three or four months ago were forecasting such a shrinkage of the economy have now reduced or removed the probability of such an outcome in the next few years. He pointed to these changes in forecasts for three key indicators of the direction of the national economy, according to Federal Reserve Bank of Philadelphia’s survey of 40 economists:

—Gross domestic product, or total economic output: Now 2.4% for all of 2024, up from the 1.8% forecast last quarter. Expectations for 1.8% growth in 2025 were unchanged.

—Core consumer spending, not counting volatilely changing prices for food and energy: 2.1% inflation this year, down from 2.4%. Price increases are now expected to reach the Fed’s 2% target in 2025, down from a forecast of 2.1%.

—Unemployment rate: 3.9% in 2024, down from a forecast of 4.1%. The 2025 outlook is 4.1%, down from 4.2%

Amid the 11 increases in the Fed’s benchmark interest rate in the past two years, economists were wondering when the central bank would start lowering rates before a big loss in jobs, a feared “hard landing” to the economy in the quest to tame inflation.

“So when you hear things about ‘soft landing,’ the idea is that we won't have to suffer a lot of job loss to get the inflation issue under control,” Eyler said. “We will see if that plays out.”

Two key reasons why economists are increasingly bullish on the economic outlook are the current lack of major job market problems, namely mass layoffs, and the fact that many households refinanced their home mortgages when the Fed’s efforts to restart the economy from the pandemic-caused recession sent interest rates plummeting.

“Those are the two rocks that forecasters are sitting on,” Eyler said.

But there are some national warning signs emerging that could topple that stability.

“If you look at delinquency rates, some things are brewing that are classic prerecession indicators,” Eyler said.

Of concern are the number of credit card and automobile loan balances that are going more than three months without payments. And the level of debt on plastic is reaching a point where it was before the Great Recession, which led to 6.5 years of no net job growth starting in November 2007.

As for California’s economy, the Golden State’s job growth has outpaced that of the North Bay as a whole, Eyler said. Here’s his outlook for local counties:

— Napa County's economy is forecast to grow faster than Sonoma or Marin counties over the next decade and enjoyed a faster rebound from the pandemic as Bay Area visitors resumed their travel with local trips.

— Solano County's economy is also primed for stronger growth, because of its diverse economy, access to both Sacramento and Bay Area markets and room to expand housing and commercial space.

— Lake County may see increased growth potential if it can attract more science and technology industries, with a corresponding change in its demographics.

— Mendocino County is being hindered by uncertainty over the economic future of its key cannabis industry.

— Sonoma County faces more challenges from issues like aging populations, high costs of living, and regulatory uncertainty in key industries.

— Marin County has potential to be a hub for life sciences companies, but historically it has faced problems with being affordable for young families and being kid-friendly.

“The state economy drives a lot of the regional outcomes, which is driven by the national economy, which is driven by the global economy,” Eyler said.

Here are highlights from the speakers on AI at the summit:

— Alexander “Sasha” Sidorkin, chief AI officer at Sacramento State University and director of the National Institute on Artificial Intelligence in Education: U.S. productivity has stagnated since 2007, but AI could provide a boost. He argued that three "myths" about the harm of AI on humanity and jobs will be slower than feared, and new technology has been shown to create new jobs over time. Concerns that AI in education will increase cheating and widen equity gaps should be solved via assignments that center on creativity over mechanics.

— Emily Harbung, CEO and founder of PairUp: Remote work is promoting increased feelings of workplace isolation. Companies and organizations struggle with accessing "tribal knowledge" within the organization's workforce and siloed information buried in documentation. That’s a task that Harbung's PairUp is seeking to use AI to bring together via tools within Slack, Teams and other collaboration software.

— Fiza Shaukat, CEO and co-founder of PatientFirst.ai: The venture is looking to cut about $50 billion spent annually by colleges and universities on back-end health care tasks, such as verifying and advising on immunization compliance well before students arrive on campus.

— John Sullins, professor of philosophy and director of programming at Sonoma State’s Center for Ethics, Law and Society: AI will transform but not destroy jobs. It won't make humans stupid, but it can amplify biases. And AI does have the potential to kill, as seen in its use in modern war zones.

Jeff Quackenbush covers wine, construction and real estate for North Bay Business Journal. Reach him at jquackenbush@busjrnl.com or 707-521-4256.