2025 Business Forecast Report, Volume 14 - Issue 2

Contributors

Faculty

Gökçe Soydemir, Ph.D.

Foster Farms Endowed Professor of Business Economics

Terence Pitre, Ph.D. Dean, College of Business Administration

College of Business Administration Staff

Diamelle Abalos Administrative Support Coordinator

Carmen Garcia Administrative Analyst

Annhenrie Campbell, Ph.D. Professor, Accounting and Finance

David Lindsay, Ph.D. Professor, Accounting and Finance

Student Assistants

Emily Molina Hani Ekpokai

STRATEGIC COMMUNICATIONS AND MARKETING

Rosalee Rush

Interim Vice President for University Advancement

Senior Associate Vice President for Strategic Communications & Marketing

Kristina Stamper Director for Communications and Creative Services

Mandeep Khaira Director of Marketing & Digital Strategy

Donna Birch Trahan Senior Writer and Content Specialist

Dr. Kim Tan Professor, Accounting ACFI Department Chair

Dr. David Zhu Professor, Accounting Interim Director, MBA Programs

Erik Soto

Dowling Graphic Designer

Katie

employment indicators

Valley total employment grew below trend over the past two years, with expectations that forthcoming rate cuts would generate sentiment for accelerated economic growth in the second half of 2025. However, the Federal Reserve’s delay in implementing those cuts—combined with growth concerns stemming from tariffs and retaliatory trade measures—has reignited worries about stagflation and renewed economic pessimism. In line with our projections under the tariff scenario, employment growth dynamics deteriorated in 2025.

All eight counties in the San Joaquin Valley posted employment growth in 2024. Madera County led with a 3.82 percent increase, followed by San Joaquin and Merced counties at 2.25 and 2.11 percent, respectively. Kings County recorded a 2.01 percent gain, followed by Stanislaus County at 1.65 percent. Tulare County grew by 0.68 percent, while Kern and Fresno counties posted more modest increases of 0.52 and 0.37 percent, respectively. With the exception of Madera and Merced counties, employment growth slowed across the Valley in 2024.

Employment categories that experienced declines in the Valley included retail trade, information, financial activities and wholesale trade employment. Sectors that reported job growth included education and health services, manufacturing, leisure and hospitality services, government, construction, trade, transportation and utilities.

All eight counties in the San Joaquin Valley posted employment growth in 2024.

Valley total employment grew at an average annual rate of 0.56 percent in 2024, a slower pace than in the previous two years. Projections indicate that this sluggish growth is likely to continue through the second half of 2025 and possibly into the first half of 2026, depending on the duration of trade wars and the timing of Federal Reserve rate cuts. Forecasts suggest an initial employment decline of 0.44 percent in 2025, followed by growth of 0.97 percent from the second half of 2026 to the first half of 2027 — conditional on trade disputes resolving by mid-2026.

The Conference Board’s Consumer Confidence Index is a key leading indicator of future economic direction, as approximately twothirds of gross domestic product is driven by consumer spending. A value above 100 typically signals expansion, while a value below 100 points to contraction. Consumer confidence declined sharply in both February and March 2025, marking the largest back-to-back drops since 2021 and signaling renewed pessimism about the economy, according to a press release from the Conference Board.

Labor force growth aligned with employment growth in the Valley during the fourth quarter of 2024. This pattern is similar to trends observed prior to the recession in 2008 and the onset of the pandemic in 2020 — both periods that were followed by rising unemployment rates. It is likely that the two series will soon cross paths, with employment growth exceeding labor force growth, raising the risk of economic contraction in the coming months.

A comparable trend is unfolding when comparing Valley and statewide employment growth. Throughout 2024, Valley employment growth remained mostly below that of the state — a dynamic often observed during economic slowdowns. The divergence between the Valley and state employment figures followed a hyperbolic pattern, which became more pronounced in the fourth quarter of 2024. This suggests a continued deceleration that may transition into an expansionary phase in the second half of 2026.

The yield curve is among the most reliable leading indicators of future economic activity. After remaining inverted for an extended period, the yield curve normalized in the fourth quarter of 2024, reducing recession concerns. However, it inverted again in the first quarter of 2025, as the Federal Reserve opted to maintain its current stance and observe the effects of tariffs before cutting rates. An inverted yield curve is widely seen as a signal of impending recession. When combined with other leading indicators pointing in the same direction, recession risks increased sharply in 2025. Projections suggest a slowing of economic activity in the second half of 2025, possibly extending into the first quarter of 2026. An expansionary phase may follow in the second half of 2026, contingent on the Federal Reserve implementing aggressive rate cuts once inflationary concerns from tariffs and retaliatory trade actions begin to subside.

employment indicators

Valley leisure and hospitality services employment slowed further in 2024, falling from 2.05 percent in 2023 to 0.7 percent. Sticky easing inflation and persistently high interest rates continued to exert downward pressure on the sector. Employment growth in this category is expected to shift from positive to negative territory in the coming months, before returning to slow growth beginning in the second half of 2026. Leisure and hospitality services employment is projected to remain below 150,000 through the second half of 2027.

Valley leisure and hospitality services, along with retail trade, represent the most vulnerable employment categories during economic downturns. These sectors are largely composed of unskilled positions, which tend to experience the greatest losses during recessions. Jobs requiring the lowest skill levels are typically the first to be displaced during economic contractions. Projections indicate an average annual decline of 0.15 percent from the second half of 2025 to the first half of 2026, followed by 0.86 percent growth in the subsequent 12-month period.

Valley trade, transportation and utilities employment posted modest growth in 2024, following a 0.57 percent decline in 2023. That decline came after several years of strong performance in the sector. A shift from positive to negative growth is expected to begin in the second half of 2025, as the effect of tariffs and retaliatory trade actions take hold. Valley trade, transportation and utilities employment is projected to remain below 330,000 through the second half of 2027.

The Federal Reserve’s decision to postpone rate cuts is another factor contributing to the Valley’s economic slowdown. As a result, trade, transportation and utilities employment are expected to decline before the anticipated rate cuts begin to take effect. Projections point to an average annual decline of 0.83 percent during the first 12-month forecast period, followed by growth of 0.44 percent in the second half of 2026 — still below the historical benchmark rate of 1.95 percent.

Valley trade, transportation and utilities employment

posted modest growth in 2024, following a 0.57 percent decline in 2023.

In addition to exceeding the decline recorded in the previous year, information employment experienced the steepest drop among all employment categories in the Valley in 2024. In the coming months, the pace of decline is expected to slow, aligning more closely with the long-term benchmark rate for the series. Projections indicate a 2.14 percent decline during the first 12-month forecast period, followed by slight growth of 0.22 percent in the following interval.

Valley construction employment posted modest growth in 2024, increasing by 0.25 percent. Despite the slow pace, the sector demonstrated notable resilience amid generationally high borrowing costs. While material costs may rise slightly, the destructive impact of wildfires on homes in the Los Angeles area is not expected to significantly affect construction activity in the Valley. Given the delay in rate cuts, employment levels in this category are projected to remain below 82,500 through the first half of 2027.

Despite its slow growth, construction employment ranked as the fourth fastestgrowing category in the Valley in 2024, highlighting the strong positive influence of ongoing inventory shortages. The impact of limited housing supply appears to outweigh the negative effects of historically high interest rates. In this context, the construction sector has remained active despite elevated borrowing costs that continue to lower demand.

Due to the Federal Reserve’s “wait and see” approach in delaying rate cuts to assess the economic impact of tariffs, projections indicate slower growth in the near term, with a near-flat rate of 0.04 percent expected from the second half of 2025 to the first half of 2026. Growth is forecast to accelerate to 0.87 percent in the following 12-month period.

Valley construction employment posted modest growth in 2024 , increasing by 0.25 percent.

employment indicators

Valley government employment grew 5 percent in 2024, outpacing the 3.47 percent growth recorded in 2023. This steeper annual trend over the past two years reflects increased investment in the region’s education and health sectors, which have historically been underrepresented in the Valley compared to California’s coastal regions. Government employment is projected to remain below 315,000 through the first half of 2027. Notably, in each of the years 2022, 2023 and 2024, average annual growth in government employment exceeded three times the long-term benchmark growth rate of 1.11 percent, as the state government prioritized education and health spending. Looking ahead, projections call for an average annual decline of 2.48 percent during the first 12-month forecast period, followed by a more gradual 0.27 percent decline from the second half of 2026 through the first half of 2027.

Financial activities employment continued to decline in 2024, though at a slower pace than in 2023. The rise of online banking has consistently put downward pressure on employment in this sector, contributing to a structural weakening of the long-term benchmark rate, which now reflects an average annual decline of 0.40 percent. With a 0.60 percent drop in 2024, financial activities employment marked its third consecutive year of decline in the Valley.

Financial activities employment in the Valley is projected to decline to 39,000 by the third quarter of 2027, following a continued structural downtrend. Unlike most other employment categories — with the exception of information — this sector has not shown signs of partial or full recovery since the pandemic. The approximately 2,000 jobs lost during that period are not expected to be regained within the upcoming two-year forecast window. However, since the first quarter of 2024, a flatter declining pattern has begun to emerge. Projections indicate a 1.09 percent decline from the second half of 2025 to the first half of 2026, followed by a more gradual 0.26 percent decline from the second half of 2026 through the first half of 2027, a trend that aligns with the observed slowing of losses in this category.

Unlike most other employment categories — with the exception of information — this sector has not shown signs of partial or full recovery since the pandemic.

With the Federal Reserve taking a wait-andsee approach to assess the impact of tariffs before implementing rate cuts, the Valley economy is expected to underperform, with elevated odds of a recession and a potential resurgence of inflation. If trade wars are resolved soon, a modest rebound in economic activity is likely to begin in the third quarter of 2026 and continue thereafter. However, if trade tensions escalate, additional job losses may occur, further delaying overall economic growth in the Valley.

With the Federal Reserve taking a wait-and-see approach to assess the impact of tariffs before implementing rate cuts, the Valley economy is expected to underperform, with elevated odds of a recession and a potential resurgence of inflation.

Housing Sector

The Bureau of Labor Statistics identifies eight Metropolitan Statistical Areas (MSAs) in the San Joaquin Valley: Fresno, Bakersfield-Delano, Hanford-Corcoran, Madera-Chowchilla, Merced, Modesto, Stockton and Visalia-Porterville. The combined data from these MSAs accounts for the total number of single-family building permits issued in the Valley.

Valley single-family housing permits rose at an impressive rate of 24.48 percent in 2024. As a leading indicator in the housing sector, permits spiked following the Federal Reserve’s announcement in the third quarter of 2024 that it would begin cutting interest rates. This increase, approximately three times the long-term benchmark growth rate for the series, followed a 1.07 percent decline in 2023. However, the Fed’s subsequent decision in the first quarter of 2025 to hold rates steady dampened expectations for a sustained recovery in the housing market.

Stockton led the Valley in 2024 with 3,773 singlefamily building permits, followed by Fresno with 3,456. Bakersfield, which ranked second in 2023, fell to third with 2,812 permits. Visalia issued 1,112 permits, making it the fourth fastest-growing housing market in the region. Modesto and Merced ranked fifth and sixth, with 854 and 454 permits, respectively. Hanford followed with 404 permits, while Madera issued only 65, placing it last among the eight MSAs.

With rate cuts on hold, projections point to slower growth in building permits, with a 6.94 percent increase expected in the first 12-month forecast interval and 10.47 percent growth in the following period.

Because employment declines were not significant in the Valley and most people remained employed, foreclosure starts stayed at historically low levels in 2024. As the Valley economy begins to feel the effects of tariffs and retaliatory actions by trading partners, foreclosure starts are expected to trend upward in the coming months, rebounding from the all-time lows recorded in 2023 and 2024.

With the Federal Reserve’s delay in rate cuts in 2025 and rising concerns over the impact of tariffs, 30-year mortgage rates are expected to decline at a slower pace until the second half of 2026. The postponement of rate cuts has significantly increased the overall odds of a recession starting in the first quarter of 2025. These odds are elevated due to the Fed’s decision to wait and observe the effects of tariffs on economic activity and inflation before moving forward with monetary easing. During this period, while interest rates remain at generational highs, the Valley economy is expected to slow further, particularly in the second half of 2025.

Number of Permits

Single - Family Building Permits

Valley average weekly wages declined 0.39 percent in 2024, shifting from 4.04 percent growth in 2023 to negative territory. This marked the first nominal decline in average weekly wages since the third quarter of 2017. Although the drop was small, it occurred in back-to-back quarters during 2024. Given the Federal Reserve’s decision to hold rates steady in the first half of 2025, with only two cuts scheduled for the second half, average weekly wages are projected to exceed $1,150 per week — but at a slower pace that will likely delay this threshold until the first half of 2027.

Given the Federal Reserve’s decision to hold rates steady in the first half of 2025, with only two cuts scheduled for the second half, average weekly wages are projected to exceed $1,150 per week — but at a slower pace that will likely delay this threshold until the first half of 2027.

The reservation wage of a representative worker in the Valley declined significantly in 2024, falling by 0.39 percent after increasing 4.04 percent the previous year. Projections point to an average annual increase of 2.38 percent in the first 12-month forecast period, consistent with expectations of slightly higher inflation. A mean reversion is anticipated thereafter, with a projected increase of 2.61 percent, assuming trade wars do not escalate or spiral out of control.

During 2024, the average annual inflation rate was 2.82 percent. Over the same period, average weekly wages declined 0.39 percent, resulting in a 3.21 percent drop in real wages and purchasing power. This notable loss in purchasing power among Valley consumers was the sharpest since the third quarter of 2023.

Concluding Remarks

As we noted in previous reports, the Valley economy has remained highly resilient despite persistent inflation, elevated interest rates, rising oil prices and wage growth. However, tariffs and retaliatory measures, combined with the Federal Reserve’s decision to delay additional rate cuts, have triggered a growth scare and renewed concerns about a resurgence in inflation. As an agricultural region, the Valley is likely to be disproportionately affected by these delays and trade actions, more so than the national economy.

Total employment grew in all eight counties of the San Joaquin Valley in 2024. Madera led the region, followed by San Joaquin and Merced counties. Kings County ranked fourth, followed by Stanislaus. Tulare, Kern and Fresno counties posted the slowest growth. With the exception of Madera and Merced, employment growth slowed across all counties.

Employment categories that declined in 2024 included retail trade, information and financial activities. Sectors that reported growth included education and health services, construction, leisure and hospitality, wholesale trade, manufacturing, government, trade, transportation and utilities.

Home values increased more quickly in 2024 than in the prior year, despite the highest long-term interest rates in 25 years. Many homeowners held onto their properties to avoid higher borrowing costs, contributing to a tightening inventory and placing additional upward pressure on home values. As noted in earlier reports, the double-digit increases seen in previous years proved unsustainable. Instead, home values rose at a single-digit rate in 2024, more in line with the long-term benchmark. After adjusting for inflation, the real gain in home values was smaller. With rate cuts delayed as of the first quarter of 2025, home prices are expected to rise at a slower pace beginning in the second half of the year.

The primary drivers of inflation continue to be oil prices and wage growth, both of which began to show signs of easing in 2024. While Valley average weekly wages increased, the rate of growth was slower than in 2023 and well below the long-term benchmark. As a result, consumer purchasing power declined more sharply in 2024 than in the previous year.

Valley net loans and leases grew at a slower pace than total bank deposits, reflecting the Federal Reserve’s ongoing balance sheet reduction and tapering efforts. The imbalance between total deposits and net loans and leases is unlikely to be sustainable in the long run and is expected to narrow, though at a slower rate. With interest rates remaining high and consumers increasingly strained, Valley community bank assets in nonaccrual status displayed a steep upward trend in 2024. Assets in default 30 to 89 days followed a similar pattern, while assets in default 90-plus days remained flat — though a delayed upward trend is expected to follow.

The Valley economy continued to slow in 2024, and this trend is likely to extend into the second half of 2025 as tariffs and trade retaliation increase recession risks. To avoid being locked into high mortgage payments, Valley residents may consider adjustable-rate mortgages (ARMs), which could lower borrowing costs once rates begin to fall. Adopting a wait-and-see approach may be prudent until the full effects of tariffs and delayed rate cuts become clear. For those without urgent housing needs, delaying home purchases until at least the first half of 2026 may help avoid high borrowing costs.

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