Dr. Chris Thornberg tells Tulare County business leaders Tulare County’s economy is steadily expanding
By Reggie Ellis @Reggie_SGN
TULARE COUNTY – Dramatic swings in the stock market. A looming trade war. Rising gas prices. What do all of things mean for the local economy in Tulare County? Probably nothing.
In his annual address to Tulare County’s civic and business leaders, Dr. Chris Thornberg provided a positive economic forecast at the 2018 Sequoia Regional Economic Summit on May 4 at the Wyndham Hotel in Visalia. He said Tulare County has shown positive gains in employment, wages, taxable sales, and tourism while maintaining affordable home prices, rent and quality of life.
“The Tulare County economy couldn’t be more positive than it is right now,” said Thornberg, founding partner in Beacon Economics, an independent research and consulting firm. He is also Director of the UC Riverside School of Business Center for Economic Forecasting and Development and an Adjunct Professor at the School and on the Council of Economic Advisors to California State Treasurer John Chiang.
Thornberg said Tulare County should continue to ride the national economic expansion throughout this year, which is now the second longest in history. Unemployment should remain low as the county should continue to add jobs at roughly the same rate as the county adds new residents. In February, unemployment fell to pre-recession levels at just 9.9%. That remains higher than the state average of 4.3% due to the volatility and seasonality of agriculture employment.
“The shadow of the Great Recession is waning,” Thornberg said.
Beacon predicts that consumer and business spending should increase in the county’s tourism industry. From the summer of 2016 to the summer of 2017, hotel occupancy rates increased from 68% to 70%, higher than Fresno (66%) and Kern County (62%). Tulare County’s hotel room rate increased by 5% surpassing the $100 mark, again, higher than Fresno ($97) and Kern ($78) Counties. This should be bolstered in Visalia where the city has incentivized developers to build more hotels and has formed a marketing district, where hotels have agreed to assess themselves higher taxes in order to pay for regional marketing.
“The numbers here in Tulare County are really good right now,” Thornberg said.
Taxable sales have been on a steady incline since 2009, topping $1.8 billion in the fourth quarter of 2017. The biggest gains have come in business and industry, which increased 12% to $18.3 million in 2017. Fuel and service stations brought in $7.3 million in taxable sales, a 9.6% increase from 2016 to 2017.
Residents and visitors are spending more money in the local economy, encouraging businesses to add new jobs. Tulare County is outpacing surrounding counties in terms of job growth. Based on overall payroll numbers, Tulare County has seen 3.3% growth in the last year, higher than Fresno County (2.9%), Kings County (1.5%) and Kern County (1.4%). It’s also higher than the Bay Area, Sacramento, San Jose, Santa Rosa, Ventura and San Diego areas. The biggest growth over the last year has come in education and health, where teachers and nurses are driving 8.4% of job growth, followed by transportation and warehousing (6.4%), professional offices (5.1%), tourism (4.7%) and construction (3.9%).
“American consumers are as healthy as they have been in a long time,” Thornberg said. “Americans are truly getting ahead.”
Thornberg did say he was concerned about how the minimum wage might affect local industries as California continues ratcheting toward $15 per hour in 2023.
“It’s cooky to have the same minimum wage in the Central Valley and San Francisco,” Thornberg said. “The Valley will be hurt worse by this than the rest of the state. It’s too high for the Central Valley.”
More concerning than the minimum wage increase is the labor shortage. Thornberg said wages are rising faster in California than anywhere else, not because of minimum wage but because of a labor shortage. The number of full time workers in Tulare County has increased by 3% since 2013. Twenty percent more workers are making between $35,000 to $65,000 per year and 3% more are making six figures. Household incomes have increased at every level and 23% of households making less than $25,000 per year in 2013 are now making more than that.
For the first time ever, per capita personal income in Tulare County matched that of Kern County thanks to a 3% growth in personal income, which outpaced both Fresno and Kern counties and matched the state average. Over the past five years, median income earnings for workers increased by 16%. That was fueled by workers without a high school diploma, whose earnings have grown by nearly 27%. Thornberg said workers in low-skill labor and entry level positions that don’t require higher education will continue to see higher wages until there are enough people to fill open positions.
“There are not enough people running around the Central Valley to fill the jobs,” he said.
Thornberg said the labor shortage could be exacerbated by strictor immigration reforms being proposed from the White House. He said the Trump administration’s views on immigration could hurt the economy.
“Immigration is the solution to the problem,” he said. “We are an economy run by immigrants. We need to enact reform to increase the number of workers.”
At least part of the labor shortage can be blamed on a lack of new housing. In terms of housing, Thornberg said the lack of single family home construction is concerning because it will mean higher overall prices for homebuyers. “It’s because we don’t build enough,” Thornberg said. “We only have half of the building permits we need annually.”
Yet housing affordability remains extremely high in Tulare County, where home prices are not climbing as fast as other parts of the state. Residential construction permits have steadily increased since 2012 but only slightly. A higher percentage of Tulare County residents (52%) own their own home compared to the state (54%). Multifamily residential permits more than tripled from 2016 to 2017, which could drive down the cost of rentals. The average rent in Tulare County was $916 per month by the end of 2017, compared to $968 in Bakersfield and $940 in Fresno.
Commercial real estate is also in short supply. New commercial real estate permit values dropped 43.4% and industrial permits fell more than 52% from 2016 to 2017. This means businesses will continue to pay higher rents instead of investing in new construction.
As always, Tulare County is only as healthy as the agriculture economy. Chinese tariffs could put a damper on ag which is already facing a labor shortage. China’s recent announcement that it will impose a 15% import tariff on American fruits and nuts is concerning considering that China is Tulare County’s second largest importer and many of the county’s top crops – oranges, lemons, grapes, pistachios, almonds, walnuts – are subject to the tariff. Fruit and nut crops represent more than $3 billion to the local economy. And while he doesn’t agree with getting into a price war with the European Union, Thornberg said he actually favors Chinese tariffs because they have more to lose. Exports to China represent less than a percent in the United States’ gross domestic product (GDP) while Chinese exports to the U.S. represent 4% of China’s GDP.
Despite the rhetoric, Thornberg said many of the things Californians are focusing on politically are not really problems. He said people are complaining about the Gas Tax but he expects gas prices to remain relatively low this year. He said America, due in large part to fracking, has doubled oil production in the last decade and now produces 20% more barrels per year than Saudi Arabia.
“This is good for a lot of reasons,” he said. “This astonishing technology is good for jobs and our oil is cleaner than oil produced in other nations.”
He also disagreed with the notion that California is taxing its richest residents out of the state. A larger percent of Californians are making more than $100,000 per year than the nation. The number of Californians making between $100,000 and $150,000 increased by 1.3% from 2012-2016. Those making $150,000 to $200,000 increased by 1.6% and those making over $200,000 increased by 3.3%.
“If rich people are leaving the state, it’s because we are making more rich people faster than they can leave the state,” Thornberg said.
Paul Saldana, executive director of the EDC, said Thornberg has been providing Tulare County’s economic forecast for the last 11 years. As part of the Economic Forum, Saldana presented those in attendance with Tulare County EDC’s five-year goal of adding 2,250 jobs in Tulare County. Those jobs should add $1.1 million in tax revenue to local cities, $633,000 to local schools and $123 million in new personal income. They plan to attain the job growth by enhancing California’s only Business Incentive Zone, expanding its marketing as a central point for distribution throughout the state, extending its “certified sites” program and enriching innovative new industries.