The Sacramento region's economy will continue to grow in 2018, although the need for skilled workers will continue outpacing qualified applicants as businesses try to manage this imbalance.
That's according to a report released this week by local experts in the Sacramento Business Review. The team behind this publication hosted its annual forecast at Sacramento State University. The forecast's local research spotlights some intriguing viewpoints, trends and projections so your credit union can plan appropriately:
Sacramento County Economic Forecast
- (To view the entire complimentary 44-page forecast report, click here).
- The Sacramento County region can expect a steady rate of growth—not spectacular—for the local job market and economy in 2018. The local “jobs recovery” following the Great Recession is now complete. To see continued strong job growth, an effort must be made to match the local labor force to jobs available.
- The construction, health care, leisure/hospitability, and business/professional service sectors have led the region's employment growth over the past five years. But the fastest-growing sectors (construction and health care) are suffering from a lack of available workers.
- Constraints in key sectors with unfilled jobs may spill over to other related job categories.
- The region is not producing enough college graduates and skilled laborers in the areas where demand is the highest. An investment in job skills that are in the highest demand may pay big dividends. Conversely, a failure to adapt to this employment market may lead to a continued increase in unfilled job openings and a slower pace of employment growth.
- Nationally speaking: low unemployment, wage growth and a confident consumer should lead to steady Growth Domestic Product (GDP) in 2018, especially in light of recent congressional tax reform. Additionally, if tax reform does encourage corporate cash “repatriation” (bringing monies back home from foreign countries), it will bring additional cheap capital for corporate expansion projects and even higher levels of employment.
- (See pages 10 – 13, “Labor Markets and Regional Economy,” for more information)
- Sacramento-area consumer sentiment remains positive according to a comprehensive survey. Local consumers are actually less optimistic than their national counterparts regarding personal economic prospects. However, these same locals are much more optimistic about the future of the overall economy during the next five years.
- Expectations are for business conditions to remain positive in 2018, with three out of four respondents predicting business activity will remain the same or improve.
- Nearly 44 percent of respondents believe their personal economic situation will improve during 2018 – 2022, with only 14 percent believing it will worsen. About 33 percent believe it improved in 2017, with 50 percent indicating it remained the same.
- Ten percent of respondents plan to apply for an auto loan in 2018, as well as 9 percent for a credit card; 8 percent for a mortgage; 3 percent for a HELOC; and 3 percent for a student loan.
- (See pages 14 – 17, “Consumer Sentiment Survey,” for more information)
- The Sacramento region's Small Business Confidence Index reveals business leaders feel positive about the economy, as well as the prospects for future revenue growth. Respondents remain “very bullish” on the local economy, consistent with elevated consumer sentiment.
- Hiring demand is strong in the manufacturing sector, although perceived credit accessibility appears to be diminishing.
- Total Small Business Administration (SBA) lending declined slightly year-over-year, but the overall trend remains positive.
- Business listing-and-sales activity remains healthy, but average selling prices declined despite higher revenues and stable cash flows of those companies.
- (See pages 18 – 21, “The Small Business Economy,” for more information)
- One question riding alongside the Sacramento residential and commercial real estate markets is: When do rents and sales prices become high enough to justify new speculative construction? It's a balancing act the region needs to look at closely if it's going to succeed over the long term.
- Commercial vacancy continues to decline while rental rates are increasing in office and industrial properties. “Class A” properties in retail, industrial, and office space have seen the most significant increases in rates and the greatest amount of leasing activity, causing a constraint in supply. This has boosted rental growth for “Class B” and “Class C” properties.
- Investor demand is high in local commercial properties, and supply remains limited.
- Speculative commercial construction is still limited in office and industrial space, but with continued increases in rent the market is inching closer to where developers can rationalize breaking ground on building projects. However, a tight labor pool along with regulatory compliance, permits, and fees are key barriers to allowing for more speculative construction.
- The median price of a home will rise 3 – 5 percent in 2018 due to demand continuing to outpace supply. This local median price was $385,000 in November 2017—a 10 percent increase from the year prior, and only 8 percent below the local price peak before the Great Recession of 2007 – 2009. While beneficial for homeowners and landlords, it also means housing became less affordable for homebuyers and renters.
- While new home sales increased 10 percent in 2017 from the year prior (to approximately 5,370 units), this number pales in comparison to the 15,000-per-year average from 2002 – 2006.
- (See pages 22 – 27, “Real Estate,” for more information)
- Loan growth is expected for the Sacramento region, albeit at a slower pace relative to last year. Local credit union and bank net-interest-margin improvement will depend largely on how aggressive the aggregate deposit pricing response is to interest rate hikes by the Federal Reserve.
- Even though Sacramento-area financial institutions are in a strong position and net-interest margins will continue rising, net income growth will be “low to moderate” due to slowing loan growth and an increase in interest expense.
- The Fed's ability to accurately gauge labor market slack and inflation expectations will be key to future economic growth. Gradual interest rate hikes appear to be the most likely course of action. Also, the balance-sheet normalization process (“quantitative tightening”), coupled with improved economic prospects abroad and higher inflation expectations, should eventually lead the longer end of the 10-year Treasury yield curve to move upward.
- The Sacramento Business Review's Financial Conditions Index shows that 2018 holds positive trends in store—similar to the year before.
- Cautious optimism continues to be the prevailing theme for capital markets.
- Corporate tax cuts combined with low unemployment and high consumer confidence suggest corporate earnings may live up to the lofty valuations seen in the stock markets.
- (See pages 28 – 33, “Capital Markets and Banking,” for more information)
- Sacramento companies and organizations continue to focus their efforts on training for necessary work skills and employee development for future changes. The factors exerting the most influence are talent shortages and skills gaps.
- The focus on compensation has reduced from this time last year.
- Local organizations predict increasing efforts to actively recruit and reduce attrition, signaling growth. However, while organizations see the need for different skills, they may not have the internal resources to address skill deficiencies through training and development.
- About 73 percent of organizations anticipate championing new or significantly revised human capital initiatives for 2018, including greater autonomy for employees as well as health protection and promotion of well-being at work.
- Human resources departments expect to focus on talent management at every level.
- (See pages 34 – 37, “Human Capital Index,” for more information)
Demographic Profile and Projections: Sacramento County*
- Total population: 1.5 million (and will hit 1.67 million by 2025).
- Working-age individuals (15 - 64 years old): 67 percent of total population in 2015 (and will fall to 65 percent by 2025).
- Labor force (at least 16 years old who are working/looking for a job): 704,000 out of 1.17 million adult population.
- Labor force participation rate (adults who “want” to work): 60 percent (or 704,000 individuals).
- Unemployment rate: 3.8 percent (versus 4 in CA and 4.1 in U.S.)
- Unemployed workers: 26,000.
- Median household income: $62,000 as of 2016 (compared to $66,600 for CA and $59,000 for U.S.)
- Poverty rate: 16.5 percent (versus 14.3 in CA and 12.7 in U.S.)
- Education of population: 29 percent have a college degree; 36 percent some college; 22 percent high school diploma; and 13 percent no high school diploma.
- Employment sector growth: click here for a local future growth breakdown (2014 – 2024) of nonfarm job projections by industry, occupation, education, and fastest-versus-largest areas of importance in the Sacramento-Roseville-Arden-Arcade metropolitan region.