The beginning of 2025 looks bright with a downward trend in inflation, but the end of the year may still bring a recession, according to the San Joaquin Valley Business Forecast.
The report, produced by Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State, includes outlooks on employment indicators, housing sector trends, inflation and prices and banking and capital markets.
Valley total employment grew by 0.56 percent, a slower pace in 2024 compared to 2023. Soydemir and his team noted a decline in Valley employment in June and July 2024, which was significant considering July is the month during which total employment usually registers a seasonal peak, being the harvest month. In August 2024, however, there was an increase in Valley total employment. These different dynamics, along with the relatively smaller agriculture-led seasonal spikes, reflected the impact of increasing diversification into other sectors of the economy besides agriculture.
Getting away from agriculture-led industries for employment is not necessarily a bad thing for the Valley, the report stated, as the higher the degree of diversification, the lower the impact from external shocks, such as policy shifts, making the Valley economy more robust. Seasonal peaks due to harvest season are progressively becoming smaller as the economy continues to expand into sectors beyond agriculture.
In 2024, Valley education and health services employment fully recovered from all job losses incurred during the pandemic. The trend line after the pandemic appears steeper than before, partly due to the priority placed by the state government on education, which positively impacted employment levels in this category more than any other in the Valley. Employment in this category grew by 6.21 percent in 2024, nearly matching the previous year’s growth of 6.22 percent, reflecting increased investment in high-skill education and health careers in the Valley. Growth in education and health services employment is expected to continue at this faster pace in 2025 and 2026.
Total employment dynamics were mixed at the county level. Madera County grew the fastest, followed by Merced, Stanislaus and San Joaquin counties in 2024. Employment growth in Tulare and Kings counties slowed in 2024, while employment in Kern and Fresno counties declined.
Valley single-family housing permits rose at an impressive rate of 25.34 percent in 2024. This phenomenal increase occurred at a time when long-term interest rates were the highest they had been in the past 25 years. As the Federal Reserve continues to cut rates in the future, Valley housing permits are projected to increase at an average of 1,250 permits per year.
The foreclosure start series remained at its lowest levels in 2024. As the Valley economy begins to respond to rate cuts, foreclosures are expected to remain unchanged in the coming years, maintaining their previous all-time low values from 2024 and 2023.
Single-family home values rose at an average annual rate of 5.20 percent in 2024, which was more than twice the rate observed in 2023.
Consumer Price Index (CPI) inflation fell further to a yearly average of 3.09 percent in 2024, down from 4.32 percent in 2023. The main driver of this decline in inflation appears to be the decrease in oil prices from previous levels, according to Soydemir and his team. The rate cuts in the third quarter of 2024 indicate that the target rate of inflation is being reached nationwide, as announced by the Federal Reserve.
There is some empirical evidence suggesting that sustained interest rates at 25-year highs did not cool the economy fast enough to attain a soft-landing before the Federal Reserve decided to cut rates in September 2024, according to Soydemir and his team.
Valley average weekly wages rose by 1.78 percent in 2024, down from 4.04 percent in 2023. The 2024 increase in average weekly wages was below the long-term benchmark rate of 3.27 percent, indicating a cooling labor market cooling in the Valley. Given these dynamics and the anticipated effects of rate cuts, average weekly wages are projected to exceed $1,150 a week in the Valley by the third quarter of 2026.
During 2024, the average yearly rate of inflation stood at 3.09 percent. In the same period, average weekly wages rose by 1.78 percent, resulting in a decrease in real wages and a fall in purchasing power of 1.31 percent. These losses in real wages are likely to extend into 2025 and 2026 as the Valley economy resumes its structural pattern.
Valley total bank deposits grew by 5.85 percent in 2024, slower than the 6.70 percent growth in 2023. The pace of growth in 2024 was also below the7.02 percent long-term benchmark growth, indicating a slowdown consistent with other indicators of the Valley economy, especially considering that growth in 2023 was also below the long-term benchmark.
Projections indicate a below- benchmark growth rate of 4.96 percent in 2025 and faster growth at 6.97 percent in 2026, as the effect of the rate cuts begins to stimulate economic activity.
Looking ahead, falling rates will likely bring an end to the crisis occurring in the car market and provide relief to some community banks, as the decline in rates will likely help mitigate stress from such sectors of the economy. Both community bank deposits and net loans and leases are expected to grow at rates more consistent with their benchmark growth rates in 2025 and 2026, particularly with improvements becoming more noticeable from the second half of 2025.
Given that rate cuts are likely to continue, Soydemir and his team recommend renting for a bit longer and delaying home purchases until rates fully align with long-term benchmark rates. Valley residents can defend against changing economic conditions by taking out flexible-rate loans, adjustable-rate mortgages and taking advantage of relatively cheap student loans to acquire skills if laid off from work. For investors who bought bonds, with the Federal Reserve’s pivot, now would be a good time to plan for selling bonds as rates fall further.
To read the full report, visit: https://www.csustan.edu/cba/san-joaquin-valley-business-forecast
