Economist Chris Thornberg gives his annual economic forecast last Friday at the Wyndham Visalia hotel.
Written by David Castellon
This year marks a significant and infamous anniversary: the start 10 years ago of the Great Recession, Chris Thornberg told a crowd last week packed in a Visalia conference room.
“It is an intriguing time we live in, in as much as the shadow of the Great Recession seems to be finally lifting. We finally have stopped reporters from talking about the slow recovery, because there probably is the general acknowledgement that things are moving forward pretty well,” he said.
That’s particularly true in California and the Valley, said Thornberg, an economist and founding partner of Los Angeles-based Beacon Economics, LLC, an independent economics research and consulting firm who came to Visalia for the 11th consecutive year to offer his economic forecast for Tulare County, which, as usual, encompassed world, national, state and local issues.
‘Pretty damn good’
To that end, he noted that despite the “rhetoric” that dominated the last presidential campaign and the initial stage of Donald Trump’s presidency claiming the U.S. economy was in imminent decline, “In reality, things are pretty damn good.”
Nationally, “2018, we’re entering with an economy firing on all cylinders. You have a global market that’s doing great, you have a labor market that’s doing great, manufacturing is dong great. There are all kinds of great things happening now, despite all this rhetoric wrapped around this dismal view of what’s happening out there,” Thornberg told the audience attending the 2018 Sequoia Regional Economic Summit put on by the Tulare County Economic Development Corporation last Friday at the Wyndham Visalia hotel.
“California’s economy is the eighth fastest-growing” among all U.S. states, with one out of every six new jobs in the nation being created here, Thornberg said.
Bad climate doesn’t matter
Of the 1.3 million full-time workers starting jobs here in the state between 2012 and 2016, at least half are earning more than $100,000 a year, indicating a lot of the new jobs being created are good ones, he noted.
“Do we have a bad business climate? Hell, yes. But it hasn’t mattered that much. The state is a growth machine for all kinds of different reasons,” so California is exceeding other states’ economic growth rates despite the badmouthing it gets for not providing a good climate to attract and retain businesses.
“Exports were at record highs last year, hotels and airports were busy and national parks incredibly busy.”
As for the Valley, Thornberg noted that the fastest-growing economic regions in California are, in order, the Stockton and Fresno metropolitan areas, followed by the Inland Empire.
“The Central Valley is booming. From just south of Sacramento to Bakersfield, right now there are about 1.3 million payroll workers,” and in Tulare County jobs in education, warehousing, distribution and hospitality industries are doing well.
Manufacturing and construction jobs are seeing slight drops in growth in the county, but Thornberg said the latter decline likely is the result of 2017 having been such a boom year for construction that “things have softened a little bit on that particular front.”
In terms of production, Tulare County agriculture did well last year, but farmers had to contend with declines in what they were paid for their goods, though those prices are beginning to rise, he said.
“Things look good for the next couple of years. Now with that in mind, there are issues,” Thornberg told the audience.
Unfortunately, the “day-to-day soap opera known as the ‘Trump administration’” is taking focus away from issues that should be addressed to avoid economic declines in the future.
For example, the global market is doing great now, but the U.S. imposing or threatening tariffs on steel and aluminum from other countries could spark retaliatory actions that might hurt the U.S., he said.
“We’re suddenly hearing all this anti-trade rhetoric coming out of this administration — with the potential worries of a trade war, which has all kinds of implications for California, California agriculture,” said Thornberg, adding that he doesn’t believe the trade dispute with China will escalate to an all-out trade war because China’s economy is much more vested in trade to the U.S. than the other way around.
But a resolution will require both sides to think clearly in their negotiations.
Immigration the key?
As a cautionary note, he projected on a screen for the audience Trump’s tweet stating that trade wars are “easy to win,” followed by the response tweeted by European Commission Chief Jean-Claude Juncker, “We can also do stupid” after stating that the European Union could impose its own tariffs on motorcycles, blue jeans and bourbon from the U.S.
Another diversion is the debate about unemployment, which is at its lowest rate in years.
But part of the reason for that low rate is there actually is a labor shortage in the U.S., in part because baby boomers tended to have fewer children than the prior generation, so when those boomers retire about an even number of millennials exist to fill their places in the work force, but not enough to fill new jobs.
For that reason, Thornberg said he has problems with Trump’s anti-immigration policy, because the Congressional Budget Office recently reported that immigration reform that brings in more people legally to fill vacant jobs would be among the best ways to stimulate the U.S. economy.
“Immigrants are not a problem in the U.S. They are a solution to a problem.”
Cost of living
The labor shortage is being aggravated in California because the high cost of living is deterring people from moving here, Thornberg said.
The best solution to that problem would be to increase construction of new housing, increasing availability and reducing home and rental prices down the road, he explained.
While not much has been accomplished in Washington, D.C., since Trump took office, the exception has been the passage of a new tax plan.
While that did cut tax rates for most people, particularly the wealthy, Thornberg said lawmakers didn’t reform the tax system, leaving the many loopholes that allow businesses and corporations to avoid bigger tax bills or avoid paying taxes entirely.
“It is stimulative, but stimulative in that we didn’t pay for these tax cuts,” so the government is being pushed into a higher deficit by an “over the top” spending plan, Thornberg said.
And because lawmakers are so entrenched in fighting for their parties rather than negotiate, “we can’t have a conversation to come together on fixing the federal debt,” he said.
“The next couple of years are going to be fine, but these long-term challenges have to be addressed.”