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STOCKTON — Business leaders have reason to be cautiously optimistic in 2017, largely because of strong consumer confidence and some positive signs from the global economy, local economists said Thursday.
“I think there’s lots of reason for optimism,” said Bank of the West Chief Economist Scott Anderson.
Anderson and Jeffrey Michael, director of the Center for Business and Policy Research at the University of the Pacific, gave their first take on the year ahead during the Business Forecast breakfast presented by the San Joaquin Hispanic Chamber of Commerce Thursday morning at Pacific’s DeRosa University Center.
The direction the incoming Trump administration will take on a variety of issues and how the Republican-controlled Congress will react are still big unknowns.
“(We’re) still trying to wrap our heads around the potential implications of the new administration,” Anderson said.
Anderson, who provided worldwide perspective, said a synchronized global economic recovery was driving much of his own optimism.
However, he is concerned about turbulence in the currency market, especially as China attempts to stabilize its yuan against the strong U.S. dollar.
In the United States, Anderson pointed to the recent 113.7 on the Consumer Confidence Index and a 2.6 percent year-over-year consumer spending growth and said, “Consumers continue to drive U.S. growth.”
Additionally, household debt appears to be more manageable. The average is now 103.6 percent of disposable personal income.
Anderson expects to see a significant fiscal stimulus package, likely in the form of tax cuts, sometime in mid-year. He believes the package will contain corporate tax cuts and perhaps a one-time repatriation cut of 10 percent for companies that bring their operations back to the United States. That comes with a downside, though.
“It will blow a hole in the federal budget,” Anderson said.
The tax cuts could reduce revenue by as much as $6 trillion over 10 years. Anderson projects debt as a share of GDP to go up under the Trump plan from 86 currently to 108.
“It could have some severe side effects,” Anderson said.
In addition, the fear is that the stimulus won’t be as a strong as hoped if that money is saved rather than spent.
At the same time, Anderson said to look for a shift toward more military and infrastructure spending.
In the northern Central Valley, it appears the economy is slowing, Michael said. He expects U.S and California policies to bring big changes to San Joaquin County by the end of the decade.
Michael also counts consumers among the area’s strengths and says they are positioned to maintain growth. He also believes California will continue to outpace U.S. economic growth.
Job growth, which was strong in Stockton in the past few years, began to slow in mid-2016. In fact, Michael said, there’s been no growth since summer.
On the positive side, however, wages are going up. The average wage in San Joaquin County went up 8.1 percent from June 2014-June 2016 and beat inflation for the first time since 2008.
Michael attributes the improvement to middle class job sectors adding positions, higher wages in traditionally low-paying industries and the increase in the minimum wage.
The kinds of jobs San Joaquin County attracts has changed over the past decade. Since 2006, the county has added 8,000 jobs in transportation and warehousing. In fact, San Joaquin County ranks second in the nation in that sector.
Additionally, the county has added 6,500 in health care and 3,500 hospital jobs.
The county is down in construction and finance sectors.
In 2017, Michael expects construction, logistics and health care to see the strongest job growth.
He also projects an increase in residential construction and thinks single-family housing permits will exceed 2,000.
Michael said that the region could see a bump immediately from changes the Trump administration is planning, but starting in 2019, there’s likely “more risk than reward for San Joaquin County.”
He believes tax cuts will provide more benefits to coastal California than to Valley residents and businesses. Repealing the Affordable Care Act “could very costly to the San Joaquin County economy,” although it isn’t clear yet how that would play out. And Trump’s trade policy presents a “major risk” to California, which has big ports and industries related to trade — particularly agriculture.
“Immigration, trade, health care and labor create disproportionate disruption in California,” Michael said.