California’s Central Valley continues to display slowing economic activity as delayed interest rate cuts, rising oil-driven inflation and global instability weigh on business and consumer confidence, according to the 2026 San Joaquin Valley Business Forecast Update Report produced by Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State.
The forecast finds the region’s slowdown is likely to extend into the second half of 2026 as the Federal Reserve holds rates steady rather than moving forward with previously anticipated cuts. Recession risk remains at 50 percent, significantly higher than the long-term average of 15 percent, as escalating regional conflicts, oil supply disruptions and fallout from tariffs ruled unconstitutional continue to weigh on the outlook.
To navigate this uncertainty, the report recommends a cautious, wait-and-see approach, including:
- Maintaining cash reserves and avoiding excessive leverage
- Continuing to rent rather than buy until interest rates align more closely with long-term benchmarks
- Purchasing a home at adjustable-rate mortgages rather than fixed or only if refinancing later is feasible
- Using low-cost student loans to strengthen flexibility if laid off
- Holding on to existing vehicles a bit longer; if you must purchase, go with the zero EV option to mitigate shocks coming from the price of oil
These recommendations, along with detailed projections through 2028, are outlined in the forecast.
Highlights from the Forecast
Employment Indicators
Employment growth slowed across much of the Valley in 2025 and is expected to weaken further into the second half of 2026. Retail trade employment declined at more than three times the rate of 2024, with additional weakness in manufacturing, financial activities, information, construction and leisure and hospitality services.
Education and health services remained the strongest-performing category, though growth slowed in 2025. Government employment posted the second-fastest pace of growth, though below the average pace of the previous three years.
Housing Sector
Single-family building permits declined 9.24 percent in 2025 following a strong prior year, and permits are projected to decline further in the coming 12-month period as elevated rates weigh on activity.
Home values are expected to rise at rates below long-term benchmark growth during the two-year forecasting window. While foreclosure starts increased 42 percent in California, foreclosure levels remain low for the time being.
Inflation, Prices and Wages
Inflation is expected to rise as oil supply disruptions linked to regional conflicts push additional cost pressures through the economy. With the Federal Reserve prioritizing inflation control, rate cuts are expected to remain delayed.
Banking and Capital Markets
The report emphasizes maintaining liquidity amid elevated uncertainty, with community bank indicators pointing to growing financial strain and below-average performance expected in the near term.
About the Report and the Author
Gökçe Soydemir’s biannual San Joaquin Valley Business Forecast provides projections for labor markets, regional housing, inflation and prices, banks and other depository institutions and capital markets. The forecast uses a unique econometric model that produces upper and lower statistical confidence bands, with actual outcomes expected to fall within this range.
Soydemir joined Stanislaus State in 2011 as the Foster Farms endowed professor of business economics. He brings extensive expertise in regional economics, applied econometrics, financial forecasting and market analysis.
