Regional economy to remain solid in 2017 but could slow after


STOCKTON — California’s economy is expected to maintain a “solid” 2.6 percent growth this year, say economists with the Center for Business and Policy Research at the University of the Pacific.

Unemployment is expected to hold steady at 5.4 percent, but it job growth will likely slow to 1.6 percent.

Economists forecast an initial boost from anticipated tax cuts and deficit spending under President Trump. However, as that fades and reduced federal health care spending, reduced immigration and international trade, and a rising dollar and interest rates will curb growth, economists said.

Trump’s surprise election “substantially” increases uncertainty around the Center’s outlook and increases the risk of a recession that could dramatically change the outlook —  most likely spurred by disruption to the global economy.

The Bay Area is in a better position to benefit from tax cuts and reduced financial regulation, but the Central Valley has benefited greatly from expanded health care spending under the Affordable Care Act, also known as Obamacare, and will be disproportionately harmed by its expected repeal.

Here are highlights from the forecast:

  • Real Gross State Product is forecast to grow 2.6% in 2017, followed by a gradual decline in growth rates to 2.0% in 2020 as the risk of recession increases.
  • The California unemployment rate has reached its low point in this cycle and is projected to stabilize at about 5.4% for the next two years, and gradually increase to 6% by 2020.
  • Non-farm payroll jobs will grow 1.6% in 2017, a decrease from the past four years when job growth was between 2.5% and 3%.  The pace of job growth statewide will stabilize around 1% in 2018 and beyond.
  • Health Services has become the largest employment sector in the state and is projected to add an additional 40,000 positions over the next 12 months, less than the 65,000 jobs added in recent years.  Due to the anticipated decrease in federal health funding, growth in Health Services jobs will decline further to 25,000 new jobs per year in 2018 and 2019.
  • Professional Scientific & Technical Services is a high-paying sector that has fueled the recovery.  Growth in this sector will slow to about 20,000 jobs over the next year compared to over 50,000 in some recent years as Silicon Valley growth cools.
  • Growing tourism and a gradual shift in consumer spending from retail to restaurants has fueled rapid growth in the Leisure & Hospitality sector.  However, this sector’s growth is slowing to 30,000 new jobs over the next 12 months and will cool further to 15,000 new jobs by 2020 as increases to the minimum wage eventually slow hiring.
  • State & Local government employment will be one of the slowest growing sectors, projected at 1% or less job growth over the next several years as state and local governments grapple with slower revenue growth and rising pension costs. 
  • About 25,000 new Construction jobs are anticipated in each of the next three years, about a 3% annual growth rate.  Despite this expected growth, there will still be fewer Construction jobs in 2020 than before the recession.
  • Single-family housing starts are growing slowly, falling just short of 50,000 units in 2016.  We project an increase to 60,000 units in 2017 and 73,000 units in 2018 as the state’s growing housing shortage revives interest in new homes.
  • Multi-family housing starts have surpassed pre-recession levels, but growth has stalled with about 45,000 new multi-family units produced in 2015 and 2016.  We expect modest multi-family growth to 51,000 units in 2017 and up to 60,000 units by 2020.


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