As the Valley economy continues to reel from the pandemic, the Federal Reserve’s anticipated interest rate hikes in 2022, inflation and record-breaking oil prices cast a pall of uncertainty.

The Federal Reserve’s primary focus to lower inflation by increasing interest rates could steer the regional economy toward a “hard landing.” Consumers can take preemptive actions by switching from adjustable to fixed-interest rates and refinancing home mortgages and auto loans now while interest rates are still relatively low.

That is the economic outlook for the coming year according to the biannual San Joaquin Valley Business Forecast produced by Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State.

Employment

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

Every employment category except financial activities and government jobs continued to recover in the Valley’s economy. Leisure and hospitality services was the fastest growing category of employment in 2021 with an average annual rate of 16.1 percent followed by trade, transportation and utilities employment, which grew by 6.63 percent. Retail services employment came in third with 6.30 percent growth in 2021.

Real estate forecast

Home values soared in 2021, registering a staggering 16.83 percent average yearly increase — more than three times the long-term benchmark growth of 5.60 percent. Valley building permits increased 19.67% to catch up with inventory shortages. Freddie Mac 30-year rates began to increase with the first rate hike in March 2022.

There were basically no foreclosures in California in 2021. Foreclosures remained at the lowest levels they have been since 1999.

Bank accruals, however, began to rise more notably. With the end of the mortgage assistance in September 2021, a steep increase in foreclosures is expected in the coming two-year interval.

Prices & inflation 

High inflation is likely to prevail through summer 2022 mainly due to the ban on Russian oil exports. The average yearly inflation rate was 4.52 percent —more than twice the rate of the long-term benchmark rate of 2.45 percent. Wage-push inflation was another contributing factor causing high inflation. The rise in labor costs was passed on to consumers in the form of higher prices of consumer goods and services.

Banking & capital markets

Valley community bank total deposits grew 26.70 percent in 2021 — more than twice the long-term benchmark. However, net loans and leases growth, 4.86 percent, was significantly less than the growth in total deposits. The low growth in net loans and leases is the first since the 2008 Great Recession. This imbalance between total deposits and net loans and leases growth is concerning. Valley bank non-accruals trended upward in 2021 creating another worry for the coming months. Community bank assets in default 30 to 89 days and assets in default 90-plus days average was higher in 2021 than 2020. Non-accruals are projected to rise faster in the coming months.