Inflation and high interest rates cloud Valley’s economic recovery

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As the valley’s economy continues to recover from the pandemic, the Federal Reserve’s planned interest rate hikes in 2022, inflation and record oil prices cast a pall of uncertainty.

The Federal Reserve’s primary objective of reducing inflation by raising interest rates could steer the regional economy into a “hard landing”. Consumers can take preventative action by switching from adjustable interest rates to fixed interest rates and by refinancing mortgages and auto loans while interest rates are still relatively low.

That’s the economic outlook for the coming year according to the semi-annual San Joaquin Valley business forecast produced by Gökçe Soydemir, the professor of business economics at Foster Farms in Stanislaus State.

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In 2021, total employment increased in all counties except Madera County. Merced County’s total employment grew 3.99%, the fastest rate among the eight counties in the Valley. Stanislaus County’s total employment grew the second fastest at 3.56%, followed by San Joaquin County which rose 3.47%.

All categories of employment, with the exception of financial activities and government jobs, continued their recovery in the economy of the Valley. Leisure and hospitality services was the fastest growing employment category in 2021 with an average annual rate of 16.1%, followed by employment in trade, transport and public services, which increased by 6.63%. Employment in retail services came third with growth of 6.30% in 2021.

Real estate forecast

Home values ​​soared in 2021, recording a staggering average annual increase of 16.83%, more than three times the long-term benchmark growth of 5.60%. Valley building permits rose 19.67% to catch up with stock-outs. Freddie Mac 30-year rates began to rise with the first rate hike in March 2022.

There were virtually no foreclosures in California in 2021. Foreclosures remained at the lowest levels since 1999.

However, bank adjustment accounts have started to increase more significantly. With mortgage relief ending in September 2021, a sharp increase in foreclosures is expected over the next two years.

Prices & inflation

High inflation is expected to prevail until summer 2022, mainly due to the Russian oil export ban. The average annual inflation rate was 4.52%, more than double the benchmark long-term rate of 2.45%. Wage inflation was another contributing factor to the high inflation. Rising labor costs were passed on to consumers in the form of higher prices for consumer goods and services.

Banking and Capital Markets

Total Valley community bank deposits grew by 26.70% in 2021, more than double the long-term benchmark. However, net loan and lease growth of 4.86% was significantly lower than growth in total deposits. The weak growth in net loans and leases is the first since the Great Recession of 2008. This imbalance between total deposits and net loan and lease growth is concerning. Valley bank non-bookings have trended upwards in 2021, creating another concern for the months ahead. The average of community bank assets in default of 30 to 89 days and assets in default of more than 90 days was higher in 2021 than in 2020. Defaults are expected to increase more rapidly in the coming months.

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