Business

'R' word looms in valley minds, fueling problem

For the first time in almost five years, the U.S. services sector, which includes restaurants, travel banking and contruction here in Charlotte, N.C., and retail sales, below in Cambridge, Mass., contracted in January, stoking worries of a reception.
For the first time in almost five years, the U.S. services sector, which includes restaurants, travel banking and contruction here in Charlotte, N.C., and retail sales, below in Cambridge, Mass., contracted in January, stoking worries of a reception. AP

By the strict definition of two consecutive quarters of negative economic growth, neither the Northern San Joaquin Valley nor the United States is in a recession.

But as national economists say a recession is looming, local economic experts say they believe the "r" word is at least on people's minds, if they're not experiencing it.

Many factors make it hard to determine or predict when a local economy is in a recession, experts said.

Chuck Williams, dean of Eberhardt School of Business at University of the Pacific in Stockton, noted that a recession isn't defined until six months later, or two economic quarters.

In the valley, he said, the past six months' growth numbers don't show a recession -- but the public's perception may be different.

"It's a self-fulfilling prophecy if people hear times are bad and cut back on their spending and businesses cut their capital expenditures," Williams said.

That trend evaporates if people don't experience economic difficulties on a personal level, said Terry Swehla, a certified financial planner in Modesto.

But although perceptions about the state of the economy are uncertain, the numbers give experts pause.

Williams noted that as the valley's housing market collapsed, employment and income growth numbers had stayed healthy. That changed last month, when unemployment rose in valley counties, he said.

"Let's see if the trend continues," he said. If it does, it would keep down wage growth, and could slow consumer spending, he added.

Jeff Burda, president of Modesto Commerce Bank, said he sees signs of a slowdown in his business clients' financial statements, and in the loan portfolios of valley community banks.

"The expectations are that the portfolios will be down," Burda said. He added that starting last summer, economic statements began predicting losses of 10 percent to 30 percent over the next few months.

"And there's been nothing I've seen since then to suggest that won't happen," Burda said.

Valley employment numbers in the past month showed drops in service and professional jobs, which some economists say suggest there's a recession.

But Liz Baker, a labor market analyst for the state Employment Development Department, noted that recessions don't affect all regions the same way.

In the early 2000s, she said, the meltdown of high-tech jobs in the Bay Area wasn't felt as much in the valley.

"We've seen a shift downward, from jobs that went up until 2006," Baker said. "Whether that results in a recession, I couldn't say."

Swehla said downturns often hit the valley harder, because of historically higher unemployment in agriculture.

But housing, not agriculture, is the sector in trouble now, said Swehla, who also is the managing director at Waypoint Financial Advisors in Modesto.

"It's exactly a conundrum," he said. "When things aren't going well, there's the perception that no sector is doing well, but that's not the case."

Burda agreed, saying agriculture is benefiting from good prices internationally and a weak dollar.

"The Los Angeles basin is also suffering right now," Burda said. And unlike the valley, that area doesn't have agriculture to support it, he said.

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