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Stanislaus State professor: Valley is in a recession
house for sale economic forecast
The most concerning economic indicator to watch, according to the San Joaquin Valley Business Forecast is the 30-year fixed interest rate, which began to display the steepest increase ever seen in the series.

Rising rates are having a disproportionate effect on the San Joaquin Valley economy, according to the newest Valley Business Forecast report produced by  Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State. 

“We stated in our previous report that the severity of the recession would depend on how fast and how high the Federal Reserve increased interest rates.  It takes time for rate hikes to influence the economy, and concerns are mounting that the Federal Reserve is raising rates too quickly without waiting to see the effect on the economy,” stated Soydemir.

He says that the yield curve on the two-year versus 10-year bond yields inverted a few times beginning in late March is a predictor of a recession.

“Now there are increased worries that the rate hikes by the Federal Reserve to bring down inflation will steer the economy into a hard landing,” Soydemir said.

Soydemir offers these recommendations: “Valley businesses and residents can take precautionary measures by switching from flexible to fixed rates, decreasing leverage by reducing debt, increasing cash holdings, renting housing rather than owning and switching credit cards that offer zero introductory interest rates.”

It’s not all bad news. All employment categories except for financial activities grew in 2022, and total employment in all counties grew at rates significantly higher than their respective long-term benchmark growth rates. However, Valley total employment is likely to decline in 2023 but will display some growth in 2024.

Other report highlights include:

REAL ESTATE: The most concerning indicator to watch is the 30-year fixed interest rate, which began to display the steepest increase ever seen in the series. In 2022, housing permits rose 18.92 percent, and home values increased 21.46 percent, bringing back worries of a housing market bubble. The double-digit increases in home values seen in 2022 and 2021 do not appear to be sustainable, and a correction back to rates more in line with benchmark growth rates is expected.  

PRICES AND INFLATION : During 2022, the average rate of inflation stood at 8.29 percent while average weekly wages rose 3.28 percent, resulting in a fall in real wages and a remarkable loss of purchasing power that is expected to continue in the coming months. Other factors putting upward pressure on overall price levels are the ongoing Ukraine-Russia war and unresolved supply chain issues. Although inflation is likely to decline at very gradual rates, a fall to the Federal Reserve’s target rate of 2 percent is not likely to occur in the very near future.

BANKING AND CAPITAL MARKETS : There was a clear change in the dynamics of the Valley’s community bank total deposits and net loans. Valley total bank deposits rose 9.57 percent in 2022 — about half the rate seen in 2020 and 2021. There was no additional growth whatsoever in Valley net loans and leases, reflecting the stricter stance of community banks in extending loans. Valley community bank assets in nonaccrual began trending more steeply in 2022 than in 2021 and are more likely to increase if the unemployment rates continue to rise. Community bank assets in default 30 to 89 days and assets in default 90-plus days displayed a steeper increase in 2022 than previous years.

To read the complete report, visit: