The Bay Area and U.S. economies will continue growing well into 2020, but the unique environment surrounding interest rates, consumer inflation and worker wages is key to understanding how the economy will look.
That’s according to a recent presentation delivered by Federal Reserve Bank of San Francisco President John Williams during the Bay Area Council Economic Institute’s 11th Annual Economic Forecast Conference. Williams’ comments, as well as his interviews with national news media outlets, spotlight some intriguing viewpoints, trends and projections so your credit union can plan appropriately:
Bay Area and U.S. Economic Forecast
- The Bay Area and U.S. economies will keep expanding well into 2020, although national growth will probably remain at a slower-than-historical pace. Williams said that barring any unforeseen events large enough to throw the economy off course, U.S. Growth Domestic Product (GDP) will come in at 2.5 percent for 2018 and 2 percent for 2019. As for 2020, the local central bank’s “Fed Views” research division forecasts 1.75 percent growth. The continued expansion will ride on a stronger global economy, stable business and consumer confidence, recent congressional tax reform, and record stock market growth.
- National unemployment will remain low going into 2020. This monthly measurement will range between 3.7 – 4.1 percent depending on the season. The six-month moving average for U.S. nonfarm payroll employment was 148,000 as of December 2017 after hitting 265,000 in 2014. It continues to drop as job openings remain high and the number of workers available decreases.
- The Federal Reserve’s short-term “federal funds” benchmark interest rate could rise four times in 2018. Many economists and Federal Reserve experts are projecting three rate hikes. However, “There is some potential the economy is going to outperform my forecast,” Williams said during an interview with USA Today earlier this month. “I’m not really worried about the economy stalling, which was a concern a few years ago.”
- As expected, the Federal Reserve’s short-term interest rate will probably be raised this coming March to 1.5 – 1.75 percent. Williams mentioned this in the article provided above, which points out he is being considered by President Donald Trump as vice chairman for the Federal Reserve Board in Washington, D.C. This would give Williams noticeable influence on monetary policymaking. “While he isn’t worried about a spike in inflation in the near term, he says gradual rate hikes ‘would be the right thing to do’ to ward off such a scenario. ‘I think that waiting too long could actually create some risk down the road and the economy would overheat,’ he said. ‘I want to see this expansion continue as long as possible’.”
- Challenges will restrain economic growth over the next two years—and quite possibly thereafter. “Those include vestiges of the recession, such as cautious lenders, fewer business startups and millions of prime-age men who remain outside the labor force,” states the above-mentioned article. “Those scars are ‘probably going to be with us for the foreseeable future,’ Williams said. He also highlights long-term challenges such as an aging population and sluggish gains in productivity, or worker output.”
- Annual wage growth for workers will finally rise. This latest national measurement to gain attention has been stuck at 2.5 percent over the past couple of years. However, it will finally hit 3 percent in 2018 and 2019 as an economy “beyond full employment” constrains labor capacity for businesses, which must do more to retain and hire workers. Additionally, some experts say this is the key to seeing consumer-price inflation (also known as “core inflation”) increase from its current low point. In turn, this is what the Fed wants to see before moving its 1.5-percent inflation target to 2 percent to help it make interest-rate projections and decisions.
- “Core inflation”—which doesn’t include volatile energy and food prices—will gradually increase from now into late 2020. This measurement has been obstinately low for many economists, as well as some Federal Reserve leaders. But it should gradually increase from its average annual 1.75 percent over the past few years to 2.2 percent by late 2020.
Bay Area Commercial Real Estate & Hi-Tech Industry Overview
The following presentation was made by an expert from commercial real estate firm CBRE. You can click here for the slideshow (including graphs and charts) or see the snapshot below:
- ‘Tech Bubble or a Bunch of Hot Air?’ (slides 2 – 8)
- Cumulative job growth from 2008 – 2017 (hi-tech versus other sectors)
- New hi-tech jobs created, proportion to total jobs, and office space demand
- San Francisco versus Silicon Valley
- Office space/apartment vacancy and new construction (2009 – 2017)
- Average asking office rent prices (1995 – 2017) and office rent growth by geography
- Average asking apartment rent prices (1994 – 2017) and apartment rent growth by geography
- ‘Tech Talent and Economic Growth’ (slides 9 – 11)
- Largest U.S. technology labor force markets and their rankings
- Bay Area and U.S. “brain gain” versus “brain drain”
- ‘Bay Area Commercial Real Estate Outlook’ (slides 12 – 14)
- Breakdown in office, apartment, retail and industrial space (rent growth and construction/completion)
- Bay Area unemployment rate and office vacancy rate (1995 – 2017)
- NASDAQ stock exchange and average asking Bay Area office rents (1999 – 2018)
Demographic Profile and Projections: Bay Area (9 counties)*
- Total population: 7.7 million (and will hit 8.4 million by 2025)
- Working-age individuals (15 - 64 years old): 68 percent of total population in 2015 (and will fall to 64 percent by 2025)
- Labor force (at least 16 years old who are working/looking for a job): 4.1 million out of 5.9 million adult population.
- Labor force participation rate (adults who “want” to work): 70 percent (or 4.1 million individuals)
- Unemployment rate: 2.5 percent (versus 4.3 in CA and 4.1 in U.S.)
- Unemployed workers: 115,000
- Median household income: $88,000 as of 2016 (compared to $66,600 for CA and $59,000 for U.S.)
- Poverty rate: 10 percent (versus 14.3 in CA and 12.7 in U.S.)
- Education of population: 45 percent have a college degree; 26 percent some college; 15 percent high school diploma; and 14 percent no high school diploma.
- Employment sector growth: click the following links for local future growth breakdowns (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance: San Francisco-San Mateo-Redwood City region; Santa Clara-San Jose-Sunnyvale region; Oakland-Hayward-Berkeley region; Vallejo-Fairfield region; Napa County region; Sonoma County region; and Marin County region.