Concerns surrounding the ability of the local economy to expand, given global contractions and the recent equity market roller coaster, should not diminish optimism when it comes to a slow but positive growth forecast for the region — at least for now — according to a Sonoma State University economist.
“After six years of upward momentum following the great recession, the key topic on most peoples’ minds is will today’s economic growth trend go away, or has it just begun?” said Robert Eyler, Ph.D., economics professor and director of the university’s Center for Regional Economic Analysis. His assessment for the year ahead is upbeat yet cautious, a forecast he plans to unpack at the Sonoma State University Economic Outlook on Feb. 24.
With the current state of global expansion and equity markets, Eyler believes there are several reasons why the North Bay should care. He sees California as a “jobs center,” but asks how much longer will this last? At the same time, the vagaries associated with growth — density, traffic, cost of living as well as other issues — are not going away.
At present, he does not see signs of a major recession on the horizon. In fact, Eyler’s forecast anticipates incremental global expansion at a rate moving up from 3.56 percent in 2016 to an estimated 3.97 percent in 2020, based on International Monetary Fund (IMF) predictions.
The real U.S. GDP growth rate forecast is expected to be close to 2.4 percent in 2016, 2.2 percent in 2017 and 2.0 percent beyond, based on Federal Reserve Economic Data (FRED) from the Fed in St. Louis in December.
According to that data, the U.S. unemployment rate of 5.0 percent in 2015 is expected to decline to 4.7 percent in 2016 and 2017, rising to 4.9 percent thereafter. The low 0.4 percent rate of inflation last year is projected to increase gradually to 1.6 percent in 2016, 1.9 percent in 2017 and 2.0 farther down the road based on how policymakers expect the rates of growth, unemployment and inflation in the economy to converge over the next five to six years in the absence of further shocks, and with appropriate monetary policies in place.
Another good sign is that the percentage change in non-residential U.S. investment since 2010 has largely been in positive territory, averaging 5 percent or better on a quarterly basis, after three years of negative numbers between 2008 and 2010 according to Bureau of Economic Analysis (BEA) data through Q3 2015.
From 2011 through 2015, the percentage change in U.S. residential investment has also been bullish with six spikes above 10 percent, including two at 20 percent or higher.
Eyler said it is interesting to note that excess reserves, loanable funds not lent at U.S. Depository Institutions (Federal Reserve banks) in 2008 dollars from January 1997 to January 2008, remained constant at about $22 billion. After 2008, total excess reserves has steadily climbed to $2.2 trillion, according to the Federal Reserve Board. This means there is ample capital waiting on the sidelines to help fuel economic growth, given higher lending rates and a greater ROI for banks and other investing institutions.
At the same time, the BEA (via Haver Analytics) reports that the core Personal Consumption Expenditures (PCE) Price Index, excluding food and energy, shows less than a 1.5 percent increase at the beginning of 2016, while total PCE including these two variables remains near zero — reflecting the effect of dramatically lower oil and gas prices offset by some increases in food costs.
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