SOYDEMIR: Virus Control Key to Economic Recovery

May 16, 2021


The national economic recovery from the pandemic is continuing at a slower pace, due to emerging variants of the COVID-19 virus and a reluctance among some populations to seek vaccination. Reaching vaccination goals in late spring will speed up the rate of economic recovery in the second half of 2021, but complete recovery in the San Joaquin Valley — as measured by the region’s full employment levels — is not expected to take place until the end of 2023. 

This outlook is presented in the San Joaquin Valley Business Forecast produced by Gökçe Soydemir, the Foster Farms Endowed Professor of Business Economics at Stanislaus State. The entire update and past reports can be found here 

Overall, regional and national indicators point to an intensifying recovery as long as residents and members of the business community continue to take much-needed precautions against the pandemic, such as wearing face coverings, enforcing social distancing guidelines and getting vaccinated. 

View the Report 

Here are some of the report’s highlights:  

EMPLOYMENT - In 2020, the average annual growth in the Valley’s total employment declined 6.85 percent. Total employment in the region will likely stay below 1.8 million until the second half of 2023. President Biden’s stimulus plan and infrastructure investment will help steepen the upward trend. Undoubtedly, the CARES Act and Federal Reserve’s deployed tools (relief programs) mitigated the effect of the pandemic, but more needs to be done to speed up the recovery, and recent measures taken by the new administration appear to be moving the recovery in the right direction. Projections point to an average growth of 6.71 percent from the second half of 2021 to the first half of 2022, and 1.56 percent thereafter until the first half of 2023. 

REAL ESTATE - The number of housing permits issued in the Valley continued to increase, even during the pandemic, rising 13.26 percent over the 12-month period, an increase of about twice the long-term benchmark growth of 6.82 percent. Building permits are likely to increase in the months ahead. There is renewed demand coming from Bay Area residents preferring to live in places that are more isolated, with the intent to minimize risks coming from the pandemic. This will likely exacerbate the low inventory situation in the Valley. Housing values will likely continue to increase at rates above long-term benchmark rates. Projections point to a 5.95 percent increase from the second half of 2021 to the first half of 2022 and 6.86 percent from the second half of 2022 to the first half of 2023. 

PRICES AND INFLATION - While deflation is a characteristic of all recessions, overall price levels have remained low during the first nine months of the recovery — a process that began midway through 2020. This has led to perhaps the most interesting development that took place during the pandemic. Wages typically fall during recessions, but in 2020, weekly average wages in the Valley rose 6.97 percent, a trend unique to this recession. Some displaced workers did not want to return to work for fear of catching the virus. The availability of unemployment compensation was another factor keeping the labor force participation rate low. The combination of rising wages and a low inflation rate of 1.76 percent has bolstered the purchasing power of Valley workers. 

BANKING AND CAPITAL MARKETS - The CARES Act relief program and the Federal Reserve’s intervention to alleviate the damage from the recession allowed community bank deposits and net loans and leases to increase in 2020. Added to this, President Biden’s economic stimulus program and infrastructure plan mean the two indicators will rise further in the coming months. Because of these interventions, Valley community bank deposits and net loans and leases increased at faster rates in 2020 than in 2019, with Valley total bank deposits spiking 21.29 percent in 2020. The economic stimulus package means total deposits and net loans and leases will rise further in the coming months. The new infrastructure plan will hasten the ability of the unemployed to get back to work. Bank deposits in 2020 increased more than three times the increase in 2019, while net loans and leases in 2020 increased more than twice the 2019 rate. 

ABOUT THE REPORT AND THE AUTHOR : Gökçe Soydemir’s biannual Business Forecast provides projections for the Valley’s labor market, regional housing conditions, prices and inflation, banks and other depository institutions and capital markets. Soydemir and his team use a unique forecasting model that produces lower and upper statistical confidence bands, with results that are expected to fall within this range. Soydemir joined Stanislaus State as the Foster Farms endowed professor of business economics in 2011. He brings strong expertise and experience in business analysis and forecasting and has published extensively on applied econometrics, regional economics, financial forecasting, market analysis and international finance.