Economist makes predictions for Central Valley

March 8, 2009

 

Noted economist John Mitchell used a flurry of charts, graphs and even some homespun poetry to offer predictions on the economic future of the Central Valley.

Mitchell was the keynote speaker for the Bank of Agriculture and Commerce’s 20th annual economic forecast held at the Brookside Country Club in Stockton. About 150 people attended the meeting to hear Mitchell’s opinion’s about an economic landscape that has changed drastically over the past two years.

“2008 to 2009 will be a culture-changing event,” he said.

In the wake of the financial and housing crisis, he said, people will change their behavior for the rest of their lives. We are already seeing an increase in savings and a more responsible approach to home equity. Government spending will increase for the foreseeable future and the public and private sectors will merge ever closer.

A long term focus on homeownership with marginal borrowers and loose underwriting contributed to San Joaquin becoming the epicenter of the credit and housing crunch, according to Mitchell. But there is plenty of blame to go around, he said, including regulatory and political failures as well as transaction based compensation systems.

Mitchell said the economy is in the 14th month of a recession that peaked in December 2007.

“This will likely be the longest recession since the Great Depression,” he said.

He predicted that the country’s Gross Domestic Product will fall by 1 percent to 2 percent in 2009 with inflation remaining steady or falling slightly. The result will be weak demand for commodities and the Fed providing liquidity through 0 to .25 percent interest rates. He said the Fed will work to stop falling prices by putting the breaks on spending and allowing the debt burden to rise. But he also urged skepticism.

“Interest rate forecasts are like peanuts, popcorn and margaritas – best taken with a grain of salt,” he said to chuckles from the audience.

In order for economic recovery to begin, people will need to spend in the short term and save in the long term. “Resource reallocation,” Mitchell called it. Housing prices will have to stabilize, inventory will have to fall and construction will have to begin again.

“The end is certain, but the timing is not,” he said.

Mitchell also spoke about job growth. His data showed that California ranked 33 in year over year employment gains, while energy rich states like Wyoming, Texas, North Dakota and Alaska ranked at the top of the list.

While San Joaquin’s population has risen by 220,181 in the past 19 years (from 466,863 in 1989 to 687,044 in 2008), total employment has only increased by 60,790 (from 210,710 in 1989 to 271,500 in 2008), according to Mitchell’s research.

Agriculture continues to be a strong area of the local economy, he said, bringing more than $12 billion to the state.

“No matter what’s going on, he puts it in a way people can understand,” said Bill Trezza, Chief Executive Officer of the Bank of Agriculture and Commerce. “He’s a user-friendly economist.”

Mitchell finished the lecture with a whimsical poem bemoaning economic volatility.

Based in Portland, Ore., Mitchell has been traveling to Stockton to make his economic forecast for the past 11 years. Mitchell has master’s and doctorate degrees from the University of Oregon. He is a former economics professor who worked as an economist for U.S. Bancorp and later U.S. Bank. He is a former chairman of the Oregon Council of Economic Advisors and has published numerous articles and economic forecasts.

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