Chapman University’s 2020 Economic Forecast Summary (PLUS the full report!)
Chapman University has released its 2020 Economic Forecast. This detailed report looks at the national, State of California, and Orange County socioeconomic information for what to expect as we begin a new decade. These details will reach to all corners of business and life in the year ahead.
Jerry Holdner, Director of Research at Kidder Mathews, is on the Chapman University Economic Advisory Board. He created the great overview below on the full 37-page report. Read Jerry’s summary of what you need to know for your business as we prepare for 2020. (The full report is available for download at the bottom of this page.)
U.S. FORECAST
The current expansion which began in June 2009, is now 46 quarters old or ten and a half years old. It is the longest expansion in the history of the U.S., surpassing the 40-quarter or 10-year expansion from 1991 to 2001.
In spite of its longevity, the cumulative growth in real GDP is still lower than that achieved during the 1991-2001 expansion. So, the current expansion may still have legs.
Several key indicators, however, indicate the current expansion is stalling. Perhaps most telling is the slowdown in job growth. Since peaking at
1.9 percent growth in January 2019, it has since declined to 1.4 percent.
Generally, year-over-year growth of one percent or lower is a reliable recession indicator. But job growth in October was 1.4 percent, higher than the one percent recessionary signal.
· Gross private investment growth rate slowed to 0.2 percent in the third quarter of 2019.
· Consumer debt service payments as a percentage of disposable income are at their lowest in decades.
· Consumer spending is still going strong.
· An indicator that leads economic cycles and composed of employment, new auto sales, building permits, consumer sentiment, interest rate spread, and purchasing managers index turned negative for the last several months. But it did not reach a level low enough that would normally precede a recession.
· Tight supply of existing homes for sale will propel housing starts upward and will lead to a strong housing sector in 2020.
· The real gross domestic product is expected to grow at a rate of 1.9 percent in 2020.
· By the fourth quarter of 2019, the economy will have added 2.2 million payroll jobs compared to the fourth quarter of 2018, and another 1.9 million by the fourth quarter of 2020.
· The unemployment rate is expected to hover around 3.6 percent in 2020.
CALIFORNIA FORECAST
Weighted down by the trade war with China and a sharp drop in residential construction during this first half of the year, job growth declined in California in 2019. It is now virtually in parity with job growth in the U.S.
Moving into 2020, things aren’t looking much better. The forecasted decline in U.S. economic growth in 2020 will negatively impact California. In addition, job growth in Silicon Valley is slowing. Although the Valley will continue to create more jobs in high-value sectors like computer systems design and scientific research & development, its overall growth rate has slowed. The recent rash of failed startups isn’t helping.
One bright spot is the increasing likelihood that the trade war with China will be resolved soon. But even if there is some sort of agreement, it will take time before trade volume with China recovers from the $25 billion drop we estimated for 2019.
· California trade with China is expected to decrease from $178 billion in 2018 to $153 billion in 2019.
· Population growth rate is pushed down by an ever-larger increase in net population outflow to other states and a higher death rate.
· Payroll employment growth rate will continue to decrease and will reach 1.5 percent in 2020.
· Manufacturing employment growth will continue to be positive albeit at a low rate of growth.
· Education and health employment will be the leading growth rate sector.
· Residential building permits took a dive in 2019 but will recover to 115,000 units in 2020. Multifamily permits will grow at a higher rate compared to single-family permits.
· Home sales decreased in both 2018 and 2019 but will return to positive growth in 2020.
· Median single-family housing price will increase at a 3.9 percent rate in 2020 compared to 2.8 percent in 2019.
ORANGE COUNTY FORECAST
From 2015-18, Orange County mirrored California’s steady decline in job growth. But in 2019, Orange County’s job growth dropped sharply from 2.1 percent in 2018 to 1.3 percent in 2019, slower than that of California and the U.S.
Rather than creating 34,000 net new jobs as it did in 2018, the County added only 22,000 jobs in 2019. Four major job sectors in the County either sharply declined or like finance, experienced outright job losses.
· Population increased by 0.3 percent in 2018, the lowest rate of increase since 2010. This dampens the potential increase in employment.
· Yearly employment increased by 22,000 payroll jobs in 2019, compared to 34,000 in 2018.
· The employment growth rate will dip to a low 1.1 percent in 2020, well below California’s 1.5 percent.
· The lower unemployment rate in surrounding counties is making it more difficult to attract workers from these counties.
· The weakness in the construction industry in 2019 put downward pressure on employment in the financial and professional & business sectors.
· The growth rate in employment in the leisure and hospitality sector that has the lowest average salaries was second only to employment growth in the education and health sector.
· Total residential permits are expected to grow at a healthy 9 percent in 2020, exceeding the numbers of 2018 and 2019.
· Median single-family housing price will increase at a 3.2 percent rate in 2020 compared to 0.2 percent in 2019.
· Home sales will rebound in 2020 following a decline in 2019.
· Taxable sales will increase by 3 percent in 2020 with motor vehicles & parts increasing at 6.1 percent compared to only 3.3 percent in California.