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California economy in for bumpy ride in 2019, but North Bay likely to fare better

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Commentary

It will be the best of times; it will be the worst of times (apologies to Charles Dickens).

In 2019, we can expect a worsening housing crisis as construction fails to keep up with demand, shrinking labor pool, lengthening commutes, economic slowdown and accelerating climate change. But we can also expect our new governor and state legislature to make progress on providing more children with preschool, enacting new laws that make building housing less onerous bringing back some form of redevelopment, and doing more to fight climate change and disaster preparedness.

Also on the plus side, the baby boomers are finally moving out of the way of the millennials’ taking over the leadership roles, and Gen Z is rising, which should lead to more diversity in the workforce, an increase in working remotely and greater practice of corporate social responsibility.

The North Bay economy will likely feel less of a slowdown than other areas due to several factors. The economic boost from fire recovery funding being spent will help. There will be significant new construction as homeowners continue to rebuild the homes lost in the fires of 2017.

Changes in permitting at the city of Santa Rosa and county of Sonoma will also help keep the builders moving forward with new construction as the improvements in timing and costs become more manageable. While interest-rate increases are expected to occur, the pent-up demand for homes should still have a significant number of buyers who qualify to purchase, especially if wages increase due to the tight labor market.

Employers are also stepping up to provide more housing benefits to their employees. The purchase of a new apartment building by Sonoma State University bodes well for modelling what other employers need to do: invest in housing for their employees. With top talent in short supply, the best way to attract and retain the workforce is to remove the high cost of housing from being a barrier to employment.

Many other major employers are looking at building or purchasing housing for their employees which could be a very positive trend for 2019.

In the North Bay, the growing problem with attracting and retaining workers in several industries, is exacerbated by the lack of affordable housing for lower wage employees. Hard hit is the hospitality industry, with restaurants like the Shed in Healdsburg closing and others on the bubble in 2019.

We also haven’t solved the need for more skilled workers in advanced manufacturing, but efforts are being made to boost interest in the field. An example is MFG Day for high school students who tour advanced manufacturing companies and hear from people who are employed by these companies. This is a collaboration of the Sonoma County Economic Development Board, CTE Foundation, Sonoma County Office of Education, Santa Rosa Junior College, North Bay Leadership Council and the manufacturers.

Employers will look for other ways to keep their employees happy as they try to retain top talent and attract new skilled workers. We can expect salary increases in competitive positions, a faster hiring process, and more programs to make the younger, diverse employees feel appreciated and part of the community.

And research from Indeed shows that the skills mismatch between job opportunities and job seekers has stayed level since 2017, perhaps helped by a rapidly changing mix of jobs.

Commentary

Since 2014, the distribution of jobs is nearly 25 percent different. That means job seekers are having some success in keeping up with changing skills requirements.

The other thing employers need to do in 2019 is prepare the coming recession. A recent survey by Duke University/CFO Global Business Outlook showed that almost half of corporate chief financial officers believe there will be a recession by the end of 2019.

There are things to do today to position organizations for this downturn. Perhaps, the key one is to always operate on a recession model. Assessing inefficiencies and shortcomings is easier before recession crisis mode.

Companies should be looking at paying down debt, incorporating more technology to reduce costs and focusing resources on core competencies and core customers. Hiring more contract workers is also one of the lessons learned from the last recession.

There is also the likelihood that the new federal tax laws that penalize Californians by capping their deductions for state and local taxes at $10,000 will trigger more company relocations out of state.

The days are past when companies are the magnet for talent. In this tight labor market, the talent is the magnet for the companies. Companies are following the talent out of California to states that have lower taxes and a quality of life some people no longer find available in the Golden State. This exodus could really grow if the state legislature decides to make changes to Proposition 13 on how commercial property is treated, split roll, ahead of the ballot measure to do that slated for the 2020 election. We will need to step up working with our local businesses to keep them here.

And 2019 promises to continue the roller coaster ride of the Trump administration. The chaos will play havoc with the economy, given there could be possible trade wars and other shocks to economic growth.

So fasten your seat belts; we are in for a bumpy ride in 2019. But with great hope that some of the rough patches will be eased in the North Bay as we work together to minimize the negative impacts and resolve to make the North Bay more resilient and economically competitive.

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