Sketchy, but positive future

The mood at last week’s North State Economic Forecast Conference was, quite simply, guarded. Many of the predictions, offered by bankers, analysts and economists, were generally sunny. A cloud of uncertainty hung over the room, however—the impending presidency of Donald Trump.

“Love him or hate him, Trump is a wild card,” Todd Mirell, a Sacramento-based commercial banker in Northern California who spoke on the current real estate market, told the hundred-plus in attendance. Many nodded in agreement.

The conference, which celebrated its 17th year, was hosted by Gold Country Casino and organized by Chico State’s Center for Economic Development. Morning sessions focused on national and state trends related to the current state of the economy, unemployment, interest rates, commercial real estate and infrastructure. After lunch, breakout sessions allowed attendees, who included North State legislators, government employees, business owners and developers, a chance to focus on more local issues such as tourism, growth, financing and economic development.

Here’s a sampling of some of the big-picture issues touched on during Thursday’s conference:

• California has the highest concentration of wealth in the country, but also the highest poverty rate, according to Bill Watkins, executive director of the Center for Economic Research and Forecasting at California Lutheran University. However, the state is divided, roughly by Interstate 5, with much of the wealth concentrated along the coast. “The problem of the California divide is that decisions are being made by people who don’t understand you,” he said, addressing the room full of North Staters.

• Since the Great Recession, California has seen a slow but steady recovery. Several speakers agreed it would likely stay on the same course for the coming years. “It was nice to hear some of the economists note that there is a possibility the next recession may be further off than the city anticipates,” Chico City Manager Mark Orme said by email after the conference.

• It’s increasingly difficult and more costly to do business in California. This appeared to be true across the board, from running existing businesses to building new ones, as construction costs have gone up and banks are reluctant to lend for construction purposes. “With increased regulations, post-Recession, big businesses can afford all the compliance people and measures that small businesses can’t,” Watkins said.

• While education is still good for the individual, it is not good for business in California, which awards two degrees for every job available—meaning our colleges are providing an educated workforce for other states, Watkins said.

• Labor laws, such as the increase in minimum wage, will likely mean more investment in mechanation, particularly in the ag field, which will lead to fewer jobs.

• Interest rates are climbing and experienced their first spike following Election Day. The Fed has predicted three spikes in 2017.

• Retail is suffering because of Amazon. Locally, that will hit home soon as the online giant has plans to open a fulfillment center just outside of Sacramento by the end of 2017, meaning faster shipping times to the North State. “The folks in the middle are really suffering,” Mirell said, pointing to struggling retail giants like Sears, Macy’s and Kmart.

• The vacancy rate in Chico’s housing market is 1.5 percent, which is very low but mirrors many other communities in California, according to Mirell.

• When it comes to infrastructure, the United States has a backlog of $3.6 trillion worth of work to do. Trump has promised to immediately designate $1 trillion to that effort. That’s great but not enough, argued Peter Luchetti, the day’s keynote speaker and founder of Table Rock Capital LLC, a private equity firm that invests in infrastructure projects.

• An emerging trend in infrastructure improvement is public-private partnerships, Luchetti said. In fact, that was the theme of the day’s conference and is exactly what Luchetti does. He pointed to key projects throughout the state in which city or county governments have contracted with private companies to improve and maintain public infrastructure. It’s a win-win, he argued, as contractors are often able to get jobs done quicker and for less money (assuming there’s some sort of financial incentive, of course).

Among uncertainties based on Trump’s flip-flopping promises, speakers had these things to say:

• “Trump’s position on trade policies scares economists like crazy,” Watkins said. Cutting off trade to China, for instance, could have far-reaching implications that will affect the cost of many goods within the United States. (A few days later, Trump withdrew the United States from the Trans-Pacific Partnership, a trade deal among 12 countries championed by former President Barack Obama.)

• When it comes to real estate, Mirell said, particularly apartment complex owners, 12 percent of renters in California are immigrants. There are no figures on how many of those are undocumented, but should Trump deport all undocumented immigrants, expect a sudden vacancy rate hike. Likewise, expect a sudden missing workforce in the ag and service industries.

• Depending on how the Affordable Care Act is repealed, not only could many people lose their coverage, but many people whose jobs became available because of an increase in insured patients will become unemployed. In addition, Mirell said, much of the commercial real estate that has been purchased in recent years for medical practices will likely go vacant.