Economist Chris Thornberg says Tulare County has what the state economy needs to expand with willing workers, available land and affordable housing
VISALIA – Tulare County, and the greater Central Valley, may be in a unique position to capitalize on the next wave of economic expansion in the state.
That was the message delivered by Dr. Christopher Thornberg, founder of Beacon Economics and expert in economic and revenue forecasting, to a crowd of government and business leaders gathered for the 2023 Sequoia Regional Economic Summit. The record crowd packed a conference room at the Wyndham Hotel on Feb. 10 to receive a more positive outlook than many might have expected.
“What the Central Valley needs to do is turn off this nonsense that the Central Valley economy has a problem,” Thornberg said. “Turn off the pity party and start widening the 99.”
Thornberg said Tulare County was uniquely situated mid-way through the state to provide what the state’s economy needs – more willing workers, outdoor amenities, available land, and affordable housing. The economist said the biggest problem facing the Valley isn’t what it has but what it doesn’t have, a good reputation. For years, politicians in Sacramento have downplayed the Valley’s importance in the state’s economy, ignored its natural beauty, and treated its residents as “poor slubs” living in a seemingly desolate portion of the state.
“This is a great place to live but you have to let people know you’re here,” Thornberg said.
Tulare County, and the Valley, are doing better than their coastal counterparts and have been for awhile. Since 2000, inland communities have added jobs and built housing at three times the rate of coastal communities. Because coastal economies are predicated on retired workers and tourism, they have been slow to recover from the pandemic. Many of the workers along the coast have moved inland in search of jobs and housing. While many of these workers are unskilled they can be provided the skills local businesses need through training.
“Training people has the best payoff we’ve ever seen,” Thornberg said.
Tulare County has more than recovered the 14,000 jobs it lost during the pandemic by adding nearly 19,000 jobs since April 2020. Tulare County’s unemployment rate is hovering at 9%, much higher than the state, but not far off from a record low of 8.2% in 2006. Tulare County’s unemployment rate is typically in double digits due to seasonal shifts in agriculture jobs. Job growth in the county was led by the transportation, warehousing and utilities sector, which added more than 2,000 jobs since February 2020. Leisure and hospitality added 1,600 jobs and construction, education and health care each added more than 1,000 jobs.
“Central Valley communities are looking good,” Thornberg said with a smile. “Industrial businesses would rather move here than deal with the border in Mexico.”
The economic pains of the pandemic were not as intense as they were for the Valley’s ocean-view neighbors. Labor force declines were the slightest in the Valley and, despite rising prices and high interest rates, the Valley’s housing market still remains one of the most affordable in the state. Local consumers and businesses have more money in their pockets as taxable sales base has increased in every city since 2019. In fact, 2022 was a banner year for growth as taxable sales grew by 18.4% in Lindsay, more than 10% in Woodlake, Tulare, Visalia, 7.8% in Farmersville, 3.8% in Porterville and 2.1% in Exeter. That’s because workers in Tulare County have seen wages rise by 2.6% last year in addition to state and federal stimulus checks and government-funded aid programs while businesses benefited from forgiven government loans and higher retail prices over costs.
While Tulare County remains one of the most affordable housing markets in the state, fewer Tulare County residents can afford to buy a home here with prices and interest rates still on the rise. The median price of a single-family home in Tulare County increased by 9.1%, reaching $356,700 in December 2022. A little more than one-third of local households (36%) can afford a median-priced home in the county, down from 46% from 2021. That’s still double the state average (18%) and close to the national average (39%). While interest rates should stabilize soon, prices will continue to climb until more houses can be built. In December, Tulare County only had a two and a half month supply of housing inventory, only slightly better than less than two months of supply a year earlier.
“We don’t have an affordability crisis, it’s a supply crisis,” Thornberg said.
The rental market isn’t much better but could ultimately be the solution to making room for more workers to fill needed jobs. Rents increased by $1,244 per month in the third quarter of 2022, a 14.6% increase over the previous year. That problem may already be stabilizing as vacancy rates saw a slight increase, meaning fewer people are looking at moving from their current situation. More rentals are also on the way. Multi-family construction saw its highest increase on record with 724 more multi-family permits than the prior year.
Thornberg said housing markets are predicated on a top level model, meaning that home builders build nicer homes to attract high-income households out of their current homes. This creates availability for rising wage earnings to move up and eventually creates more entry level housing. Unfortunately, many people didn’t want to move during the pandemic, so no one moved into the nicer homes in other parts of the state. He said residential construction companies should refocus on townhomes and condos to create more room for those with rising incomes who may be new to the area.
“Your building permits have great numbers here,” Thornberg said.
Consumers and businesses worried about an impending recession shouldn’t, because it’s not going to happen. Thornburg said the nation is not heading into an economic recession but rather struggling to shake off a stimulus hangover. He said the inflation the economy is experiencing has little similarities to the causes of the debilitating recession in the 1970s but is a direct result of the government pumping too much money into the economy during the pandemic. The U.S. economy lost about $1.1 trillion in economic activity during the pandemic but responded by providing $6.5 trillion in economic stimulus, an overreaction that is forcing high retail prices, high interest rates and high gas prices to compensate for consumer spending and business investment binging.
“This was the greatest spike in money supply since the 1960s,” Thornberg said. “It’s kind of like drinking an entire bottle of tequila. You feel great when you’re drinking it. You’re funnier, a better dancer, everything is going your way. But you wake up the next morning and you feel awful … and eventually it wears off. The only way out is to let inflation run its course.”
The good news, Thornberg said, is that peak inflation should be in the rear view mirror. Business owners and consumers can reasonably expect the cost of goods and services to increase about 11% over the next five years, but that is similar to normal inflation. It shouldn’t be a problem for consumers who have seen their wages rise faster than inflation. The lowest half of household incomes saw a 50% increase in net worth and the average household income recently passed the $60,000 mark nationwide. He used an example of a made-up newscast interviewing someone filling up their gas tank complaining about high gas prices and the economy but on their way to a weekend on the lake with an Excursion pulling a speed boat.
“The economy is awful, we had to buy cheap beer for this trip,” Thornberg joked. “The average cost of gas went up by 50% but the average vehicle miles driven didn’t change. This is a false narrative we are creating.”
Thornberg said the doomsayers in the national media continue predicting a recession but said there are no major imbalances in the economy. Interest rates are already stabilizing and the prices of goods and services should begin coming down this year. The real problem facing the current economy is a housing shortage and a labor shortage. Earlier this month, national unemployment dipped to 3.4%, the lowest since 1969. But there are now more job openings, about 11 million nationwide, than jobless, less than 6 million, which is creating an excellent market for people already employed to seek out higher paying jobs. There are not enough people entering the labor force in California, which is experiencing a declining birth rate and an exodus of people to state’s with available housing. He also reminded the crowd there are always people who can work but are not part of the labor force because they choose not to work.
“The stoner playing video games isn’t going to pop out of his parents basement and start working again,” Thornberg quipped. “The one thing every county in America has in common is help wanted signs.”
While the basement dwellers might be a small part of the problem, the real issue was that a large portion of the population retired during the pandemic, leaving an already dwindling workforce woefully unable to fill the job growth in businesses reinvesting in operations with money from the stimulus. Thornberg said all sectors will turn to technology to find ways to get more productivity with fewer workers. The bottom line for the economy is that it does not have a demand issue, it is simply struggling to keep up with demand. That should only be a temporary problem until businesses adjust to the current available labor force.
“If the consumer is healthy, they can power the economy through all sorts of turbulence,” Thornberg said.