The Sacramento region’s booming economy likely will soften but avoid recession in 2019, experts told a large gathering of business leaders Wednesday, Jan. 16, at Sac State.
Sacramento’s economy has been “nothing short of spectacular” in recent years and remains strong, said Sanjay Varshney, a professor of finance at Sac State and chief economist for the 2019 Sacramento Business Review, an annual economic forecast for the region. “But we are seeing some signs of softness.”
Varshney and other experts, including Sac State professors, told a crowd of more than 1,000 people in the University Union Ballroom to expect a slowdown in labor markets, real estate and the overall regional economy this year. “Enjoy the warm weather, but winter is coming,” their report says.
The Sacramento Business Review, in its 11th year, is a comprehensive analysis of the regional economy. Lead authors include professors from the College of Business Administration who share their expertise in such areas as consumer sentiment, small business, real estate, capital markets and banking, and human capital.
“This is a very unique and talented team,” Varshney said in an interview following the presentation.
At Wednesday’s event, experts pointed out that Sacramento’s unemployment rate hit historic lows in 2018, and household income increased. But the pace of job growth in the region has slowed, in part because of stagnant growth in the labor force.
If labor is scarce, “it will be difficult to grow at a reasonable pace,” said Chase Armer of Planned Solutions, a financial planning and investment advisory firm based in Sacramento. One of the reasons for the stagnant labor force, Armer said, is that many construction workers in the region are commuting to jobs in other areas, where wages are higher and work is steadier.
Consumer sentiment in the Sacramento area remains positive overall but has dipped slightly, according to panelists. Also noted is that the number of people who plan to acquire mortgages, auto loans or credit cards during the next year has decreased.
The outlook for real estate “is really good, especially if you’re a landlord,” said Matt Cologna of Cushman & Wakefield. Property values keepl growing, though slower than in recent years. Office vacancies are down, and investor demand for property is soaring.
The downside, Cologna said, is that inventory is low, driving up rents.
“We’re still affordable compared to the Bay Area,” he said. But rents are rapidly rising in the Sacramento region, pricing out many prospective tenants, especially in midtown and downtown.
California’s devastating wildfires, PG&E’s impending bankruptcy and other factors could have a negative effect on Sacramento’s economy in the coming months, Varshney said. Global issues such as escalating trade conflict between the United States and China, political uprisings in Europe and a volatile stock market also are in play, he said.
“We don’t want to hit the panic button, but the landscape has changed dramatically during the last few months,” Varshney observed.
Sacramento has a history of entering recession, defined as two straight quarters of negative growth in the Gross Domestic Product, about 18 months before the nation does, he noted. But Varshney and other experts are taking a cautious approach to their projections for the coming year.
Asked whether a recession looms in the Sacramento area, Sac State business professor Elizabeth Lyon gazed into the “crystal ball” she held in her lap.
“My Magic 8 Ball says ‘don’t count on it,’ ” she said. – Cynthia Hubert