California’s Central Valley economy continued to show mixed signals in 2024, demonstrating resilience despite persistent inflation, generationally high interest rates and elevated oil prices.
The Federal Reserve’s aggressive rate cut in September 2024, along with a cut in mid-November, has improved the Valley’s economic outlook. While financial markets responded quickly, slower-moving goods markets — such as real estate and automobiles — are expected to feel the impact around the second half of 2025 as existing contracts expire and new agreements reflect lower rates.
Core inflation continued a downward trend and is expected to reach the Federal Reserve’s 2 percent target in the coming months. However, oil prices, driven by regional conflicts, remain a significant risk factor. Additionally, higher tariffs and deportations of undocumented workers may cause stagflation — defined as persistent inflation combined with stagnant consumer demand and relatively high unemployment — in the next two-year period.
These are among the key findings in the newest San Joaquin Valley Business Forecast, produced by Gökçe Soydemir, the Foster Farms endowed professor of business economics at Stanislaus State.
To navigate economic uncertainties, according to the report, Valley residents can consider the following:
- Delay buying a home and continue renting until interest rates align with long-term benchmarks;
- Maintain cash reserves for flexibility;
- Invest in bonds while interest rates are high and consider selling as rates decline; and
- Leverage adjustable-rate mortgages (ARMs) and affordable student loans to reduce costs and build marketable job skills.
Among the report’s highlights:
Employment Indicators
Valley total employment showed declines in June and July 2024 — the first since early 2021. These declines are likely to persist into the first half of 2025 before the effects of falling rates fully materialize. The July 2024 decline is significant because it typically marks a seasonal employment peak. In 2024, retail trade employment declined at a similar rate to 2023, making it one of the weakest-performing sectors. Other categories, including trade, transportation, utilities, information and financial activities, also reported declines or stagnant growth. Education and health services, however, continued to expand, growing above their 25-year benchmark rates.
Housing Sector
Home values increased at a faster pace in 2024 despite long-term interest rates reaching generationally high interest rates. Inventory shortages, along with homeowners holding onto properties to avoid high interest rates, continued to drive up home values. This year, there was a smaller real gain in home values when accounting for inflation. Valley housing permits for single-family units increased in 2024 after a decline in 2023. Projections suggest that as interest rates decline, home values will grow closer to the long-term benchmark rate of 5.99 percent.
Inflation, Prices and Wages
Inflation in 2024 continued its downward trajectory toward the 2 percent target, a factor that contributed to the Federal Reserve’s September rate cut. Average weekly wages in the Valley increased in 2024 but trailed behind inflation, resulting in a loss of purchasing power for consumers. Projections suggest wage growth will remain modest as inflation declines.
Banking and Capital Markets
Valley community bank deposits grew in 2024, although at a slower pace, while net loans and leases remained below their long-term benchmark growth rates. A discrepancy between total deposits and loans persists but is expected to correct as rate cuts begin to influence economic activity. Community bank assets in default for 30 to 89 days and 90-plus days increased slightly in 2024, reflecting challenges in the car market and other sectors sensitive to interest rates. Nonaccruals also showed signs of increasing, possibly pointing to an impending recession.