What will 2010's economy look like? We asked the experts
| Saturday, Jan 02 2010 12:00 PM
Last Updated Saturday, Jan 02 2010 12:00 PM
It's probably safe to say most people weren't sorry to see 2009 go. The drumbeat of bad economic news has grown tiresome for just about everybody.
Whether the beating will continue this year is hard to say. There are an awful lot of unknowns, including major regulatory moves that could completely reshape various industries.
Still, we asked some knowledgeable folks to dust off their crystal balls and weigh in on the economic outlook for the region. Here's what they told us:
Real estate
The residential real estate market hit bottom last year and we'll likely see some "flattening out" this year, said Nance Fillmore, president of the Bakersfield Association of Realtors.
Prices plunged in 2007 due to a massive influx of foreclosures, but modest price increases resumed last year and will continue, she said.
"It's not going to be another boom like we had before," Fillmore said. "We'll just return to slow, steady growth. That's going to be the new normal."
Fillmore said she isn't too concerned about another big wave of foreclosures depressing prices again.
"It's been the rumor for months, but seeing is believing, and so far they just haven't appeared," she said. "The president is pushing the banks to do loan modifications to keep people in their homes, and I don't think we're going to see a flood of shadow inventory. Banks are letting them trickle out slowly at a monitored rate.
"It really is in their best interest to continue doing that, because if they dump them all at once, they won't get as much for them."
In November of last year, distressed listings in Bakersfield accounted for 57.2 percent of sales, but that's down 7 percent from November 2008, according to the Crabtree Report, a closely watched gauge of local real estate activity.
The median price of an existing home was $142,845, down 5.1 percent year-over-year but up 3.5 percent from October to November.
Commercial real estate prospects may not be as strong, said Chad Brock, senior associate in the Bakersfield office of NAI Capital. Tight credit continues to be a big issue in commercial real estate lending, and it's not clear that prices in that segment have bottomed out.
"We're continuing to try and find a floor," Brock said.
So far there hasn't been as much foreclosure activity in commercial as in residential, Brock said, but that could change this year.
"These are larger loans so the banks are handling those a bit differently," he said. "I'm not sure what they're going to do about them. That script hasn't been written yet."
One bright spot for the industry is that lease rates are probably as low as they're going to get, Brock said.
"Landlords have already given up a lot of concessions to get tenants," he said.
Oil
Kern's oil industry could well have mixed fortunes in 2010: The commodity itself looks to do well this year, but legislation originating in Sacramento might also eat into local producers' profits.
For these reasons, few are confident of a good year ahead.
"So many unknowns ... are going on," said Les Clark, vice president of Bakersfield's Independent Oil Producers Agency. "There are still people that are, as they say in the oil industry, just keeping their powder dry."
The U.S. Energy Information Administration predicts that the industry benchmark price of West Texas Intermediate crude will rise, modestly, to $82 a barrel by December 2010. (The price between October 2009 and March 2010 was expected to average about $76 a barrel.)
Mike Starzer, president and CEO of Bakersfield-based Bonanza Creek Energy Co.,, offered a combination of big-picture optimism and state-level hesitance.
Specifically, he said many oil companies are scaling back their projections for California production because of proposals for a new tax on crude produced in the state.
Others in the industry have expressed anxiety about California's proposed greenhouse gas emissions rules and potentially costly oil spill-containment measures.
But taking a broader view, Starzer said investment in the oil and gas sector is poised to rise, both because of signs that the economy is improving and the fact that credit markets are healing.
"I think we're hearing from everybody that they're going to be opening the checkbook and doing investment," he said.
He added: "I think 2010's truly going to be an exciting year for oil and gas."
Retail
The International Council of Shopping Centers says regardless of the final numbers for the holiday season, 2010 is going to be "more robust" than last year.
But because retail real estate is closely tied to the financial crisis and credit crunch, it could take one and a half to two years before shopping center owners see a full recovery, said Michael Kercheval, the trade group's president and chief executive officer.
In the meantime, there are hopeful signs.
In October, U.S. comparable-store sales rose 2.1 percent year-over-year. This was the second monthly increase for the industry after 13 monthly declines, Kercheval said.
Plus, the luxury store segment had an increase of 1.8 percent in comparable store sales for October, the first increase for that segment since May 2008.
The Conference Board Consumer Research Center is cautiously upbeat.
Consumer confidence posted a moderate gain in December as expectations for the short-term future increased to the highest level in two years, the non-profit research body announced last week.
Sugardaddy's, an upscale clothing boutique in the southwest, is downright bullish.
"My outlook is buy it and they'll come," said owner Shari Cunningham.
"Granted, we have three or four racks of 50 percent off clothes, but so does everybody else. The thing is, if you stop buying and never have anything new, nobody's got any reason to come in. We get new shipments every day, and we're selling most of it."
Ellie Jaye's Boutique, a downtown children's clothing and furniture store, is also optimistic about the New Year.
The boutique isn't holding back. In April, for instance, it launched a revamped Web site enabling it to start selling online.
"We opened up in this economy, so we've got nowhere to go but up," joked owner Jason Martin.
Banking
Community banks, as dependent as they are on the overall health of the economy, have an uncertain outlook for 2010. Their fate necessarily rests with local businesses' and consumers' appetite for loans, which varies according to major unknown factors such as employment growth and the ongoing state budget crisis.
There are bright spots: The chief credit officer at Mission Bank, Stan Newman, said demand is rising locally for residential lots, especially those suitable for entry-level housing, and that this bodes well for lending. He added that community banks here and elsewhere could benefit from the federal government's plans to extend guarantees on certain small business loans.
Still, many community financial institutions remain "substantially challenged" by problem loans that could lead to more bank failures in California and the West, said Rod Brown, president and CEO of the California Bankers Association.
But he said the bigger problem remains reduced demand for loans. Despite calls by the Obama administration for increasing lending, Brown said, the number of loan applications is only going to grow as fast as does the economy.
"It's just going to take a while longer, obviously, for that cycle to work its way through," he said.
Credit unions
Some of the same problems troubling the banking industry threaten to hold up credit unions -- namely, consumers' hesitance to take on new debt and the shaky general economy.
That said, the official outlook offered by the Credit Union National Association calls for loan growth of 7 percent in 2010, which is better than its 2009 estimate of 4 percent growth but still behind the 8.5 percent average over the last five years.
"It's going to be a better year than 2009. We're confident of that," said the president and CEO of the California Credit Union League, Bill Cheney. He added that credit unions have probably made sufficient adjustments to their operations and finances to weather 2010.
Nevertheless, returning to full health could take time.
"It's going to be a long, slow recovery, I'm afraid," Cheney said.
Employment
Nationwide, employment is projected to increase by 15.3 million, or 10.1 percent, over the 10 years between 2008 and 2018, according to a report the U.S. Bureau of Labor Statistics released last month.
Total job openings during this period are projected to be 50.9 million.
More than half of the new jobs will be in professional, business and service occupations.
Positions typically requiring a post-secondary degree are expected to account for one-third of openings.
Bakersfield, though, will likely lag the nation in employment even after the recovery.
"Our unemployment will always be above the national and state averages because Kern County is still a natural resource-based economy with reliance on agriculture and oil," said Cal State Bakersfield economist Abbas Grammy.
"However, I expect our unemployment rate to fall into single digits once again with the end of the national recession, improvement in the state's budgetary condition and if economic diversification strategies are successfully implemented to increase the employment share of service industries," Grammy said.
The 2010-11 edition of the federal government's occupational outlook handbook profiling hundreds of different types of jobs can be found online at www.bls.gov/oco/.
Vehicle sales
The slump in new auto sales could soon show up in the rear-view mirror, according to some in the industry. Question is, what will the rebound look like?
A recent assessment by the California New Car Dealers Association calls for increasing new vehicle registrations across the state in 2010 -- perhaps by 10 percent or more.
That estimate looks a tad high to Taft car dealer Devinder Singh.
"Ten percent I think is optimistic," he said, adding that he expects more modest growth of 2 percent to 5 percent.
But even that slower growth could be enough to sustain local dealerships, he said.
"It's going to be better because a lot of dealers have learned how to cope to control the expenses now," he said.
Things to watch out for, according to a recent report by Fitch Ratings, would be another dip in the national economy or a spike in gas prices. The company predicted a 7.8 percent improvement in 2009 year-end sales.
Tourism and hospitality
After a very tough year in 2009, indications in the tourism and convention industry point to recovery in 2010. And the outlook in Bakersfield could be better yet.
Smith Travel Research, a national lodging data service, estimated that hotel occupancy rates plunged 8.4 percent in 2009 -- but that 2010's decline will amount to a mere 0.3 percent.
The head of Bakersfield's convention and tourism bureau, Don Cohen, has set his sights higher than that. He noted that the industry books events months and years in advance, and that several popular events are set to come to town in 2010.
Among the biggies coming to Bakersfield this year: the 2010 Amgen Tour of California bicycle race, two state high school sports championships (basketball and wrestling), the March Meet at Auto Club Famoso Raceway, and the American Bicycle Association's U.S. Nationals -- PRO BMX Series
"I just look out there and I go, for us, 2010 is going to be a nice year," Cohen said. The trick now for his team and local hotels, he added, is booking events for 2011 and 2012.
Health care
Unquestionably, the most important factor driving the big-picture forecast for the health-care industry is Washington's efforts to reform the national system.
So far, there's no certainty that any legislation will yet come out of Congress this year. But if bills passed in late 2009 by the U.S. Senate and the House of Representatives do lead to reform, it could affect the whole industry.
"Right now we are still sort of in a wait-and-see in health-care reform," said Nicole Kasabian Evans, spokeswoman for the California Association of Health Plans, an industry trade group.
If a reform bill does come to pass, it will be up to state legislators to decide how to set up things like the Senate's proposed insurance exchanges, which also could have a big impact on the local industry, Kasabian Evans said.
Apart from that, local hospitals are sure to face difficulties this year recruiting enough nurses, pharmacists and clinical lab specialists, said Jarrod McNaughton, spokesman for San Joaquin Hospital.
Also, he said, with the economy still wobbling and the state budget uncertain, hospitals could be left to deal with growing numbers of uninsured patients -- and an expectation that medical centers will care for them even without adequate financial support from the government.
"It could be a big challenge for us," McNaughton said.
Agriculture
For the second year in a row, Kern County had a gross agricultural production value of more than $4 billion, according to the 2008 Agricultural Crop Report, the most recent data available from the county's Department of Agricultural Measurement Standards.
However, the gross value of all agricultural commodities produced, $4,033,312,000, was down $58,854,180, or 1.4 percent, from 2007.
Agriculture is a declining industry due to the loss of farmland, insufficient water and other factors, said Cal State Bakersfield economist Abbas Grammy.
But Kern County has a significant advantage in the provision of agricultural support activities.
"The county must take advantage of its large agricultural sector to gain greater specialization in agricultural products manufacturing" to improve ag sector prospects, Grammy said.
One of the hardest-hit segments has been the dairy industry, under pressure from a massive decline in milk prices even as feed and fuel costs rose.
The state lost about 10 percent of its dairies last year, and that negative momentum may be difficult to slow even as global demand creeps up again.
"We continue to be extremely concerned," said Michael Marsh, chief executive officer of Western United Dairymen.
