Center for Strategic Economic Research
Economy Watch and the Quarterly Economic Report are ongoing publications examining various economic growth indicators and other factors in the Sacramento Region. These publications presents a snapshot of current economic conditions in the Sacramento Region and provide comparisons with other selected regions of California and the United States.
Q3 2014

The Sacramento Region Saw a Lower Rate of Annual Job Growth at the End of the Third Quarter of 2014

The number of jobs on payrolls in the six-county Sacramento Region increased by 2.0 percent between September 2013 and 2014, equating to a nearly 18,000-job annual increase, according to preliminary data. Both the core four-county Sacramento metropolitan statistical area and the Yuba-Sutter area added jobs in the past 12 months. The entire Sacramento Regionís September 2014 job growth shows a decline since the first month of the quarter and is much lower than the same point in the previous year, now tracking at the same level as the national average and slightly below the statewide average. Although most of the Regionís sectors are still adding jobs, the overall downward trend in regional job growth over the past 12 months is due to slowing growth in four of the Regionís five largest sectors. Leisure & Hospitalityís slowing growth rates pushed it into negative territory, showing -1.7 percent annual job growth in September 2014. All segments of this sector declined, particularly the segment that includes restaurants and bars. The Educational & Health Services sector posted 4.9 annual job growth, down from 6.6 percent in September 2013 due to continued growth in health care activities, but almost no growth in the private educational services component. The Regionís Trade, Transportation, & Utilities

Four of the Regionís Five Largest Industry Sectors Added Jobs in the Past 12 Months

and Government sectors showed drops in annual job growth rates since the beginning of the third quarter of 2014 after a period of relatively flat growth, posting respective annual job growth rates of 0.6 percent and 0.8 percent in September 2014. The retail trade component of the Trade, Transportation & Utilities sector demonstrated a slowdown in job growth, although still positive, in recent months. Growth in Sacramentoís largest sector, Government, is still exclusively due to gains in state government activitiesófederal and local government activities are losing jobs on an annual basis in the Sacramento Region. At 4.9 percent in September 2014, Professional & Business Services posted higher annual growth rates than the 3.1 percent growth at the same point in the previous year, but lower than rates posted in the beginning of the third quarter of 2014 due to much slower growth in this sectorís administrative and support services segment.
California saw a net annual gain of around 312,000 jobs in September 2014 or 2.1 percent annual job growth which places it just above the national average, but 1.2 percentage points below the same point in the previous year. California ranked 14th among all states based on the preliminary September 2014 annual job growth. A number of other western states posted stronger annual job growth including Nevada, Utah, Texas, Oregon, Colorado, Arizona, and Washington. Annual job growth at the national level has been fairly flat for the past few years but the nation showed a slightly higher rate from the previous year, posting 2.0 percent annual job growth in September 2014, an increase of nearly 2.7 million jobs over the past 12 months. The SF Bay Area posted relatively strong annual job growth in September 2014 at 3.1 percent, reflecting an employment increase of over 95,000. The Stockton marketís job growth slowed further to 1.3 percent in September 2014 with a 2,600-job increase, placing it far below both the statewide and national averages. The Solano market posted 2.1 percent annual job growth in September 2014 with the addition of 2,700 jobs on payrolls. This is a marked improvement over recent months for this market and places it above the national average and around the statewide average.

Four of the Regionís Five Largest Industry Sectors Added Jobs in the Past 12 Months

The Sacramento Region posted job gains in seven of its eleven major sectors between September 2013 and 2014. Two of the largest sectors, Educational & Health Services and Professional & Business Services, posted the greatest gains adding a combined total of 12,400 jobs in the past 12 months. The Construction sector added 2,900 jobs in this period with most of the increase seen within the specialty trade contractors segment. The Leisure & Hospitality, Other Services, and Information sectors lost jobs over the 12 months ending September 2014, posting a combined loss of 2,400 jobs with two-thirds of those losses in the Leisure & Hospitality sector. The total annual net gain of 17,900 jobs brought Nonfarm employment in the Region up to 922,400. This employment level is similar to what the Region saw in the year 2005 and while it is about 72,000 jobs above the low point in the recession, it is still 45,500 below the year 2007 peak.

Total Nonfarm Employment in the Region is Around Year 2005 Levels

The Government, Manufacturing, and Financial Activities sectors lost jobs statewide while Professional & Business Services and Educational & Health Services saw the greatest gains in the past 12 months. Between September 2013 and 2014, the SF Bay Area saw job losses only in the small Mining & Logging sector. The greatest annual jobs gains in the SF Bay Area were in the Professional & Business Services and Educational & Health Services sectors. Three sectors, Manufacturing, Other Services, and Construction, lost jobs in the Stockton market while the Government and Professional & Business Services sectors saw the largest annual job gains. In the Solano market, the Construction and Trade, Transportation, & Utilities sectors posted the largest employment increases in the past 12 months. Only the Professional & Business Services sector lost jobs on an annual basis in the Solano market.

The Sacramento Regionís Unemployment Rate Was Slightly Above the Statewide Average in the Third Quarter of 2014

With about 87,000 residents officially considered unemployed, the Sacramento Region posted a 7.9 percent seasonally adjusted unemployment rate in September 2014. This puts the Regionís rate just one basis point above the statewide average and 1.5 percentage points lower than at the same point in the previous year. At 7.8 percent, the stateís unemployment rate remained above the national average of 6.5 percent. California had the sixth-highest unemployment rate in the country in September 2014. The SF Bay Area posted a 5.7 percent unemployment rate in September 2014, far below both the statewide and national averages. In stark contrast, Stockton is still seeing a double-digit unemployment rate, 11.6 percent in September 2014. The labor market continues to improve in the Stockton market, however, with the unemployment rate dropping 1.7 percentage points in the past 12 months. With a 7.3 percent unemployment rate, the Solano market remained between the statewide and national averages

The Sacramento Regionís Annual Job Growth Rate Places it in the Bottom Half of the List of Competitive Regions

At 2.0 percent annual job growth in September 2014, the Sacramento Region places even with the national average and above three of the twelve regions it competes with for business location and expansion projects, Los Angeles, Stockton, and Albuquerque. Austin, the SF Bay Area, and Denver posted annual job growth 3.0 percent or above in September 2014. These three top-performing markets are currently in an expansion phase along with Salt Lake City and Seattle. The other competitive regions are still working through the recovery phase and are working towards pre-recession employment levels.

The Sacramento Regionís Unemployment Rate is the Third-Highest Among the Group of Competitive Regions

The Sacramento Regionís seasonally adjusted annual average unemployment rate of 7.9 percent in September 2014 ranks it the third-highest rate among the list of competitive regions and above the national average. It came ahead of only the Inland Empire (Riverside and San Bernardino Counties) and Stockton. San Diego, Albuquerque, and Los Angeles also posted unemployment rates above the national average, leaving the eight remaining competitive regions with rates at or below the nationís annual average unemployment rate. Salt Lake City and Austin posted rates below the 5.0 percent threshold that economists call ďfull employmentĒ and, as a result, these regions could begin to see strains in the local labor market.

Housing Affordability Continues to Decline Throughout the State with Increasing Home Sale Prices

The median home sale price in the Sacramento Region increased by 12 percent between the second quarters of 2013 and 2014. This rate of growth was the same as the statewide average, well above the national average of around 6 percent, but below many of the major and neighboring regions in the state. Stockton and Solano saw median home sale prices increase between roughly 20 percent and 18 percent in the past year, exceeding the statewide average of 12 percent. The Sacramento Regionís median home sale price in the second quarter of 2014 was $280,000, which fell between the statewide and national averages. The highest median home sale prices were in the coastal markets, ranging from $434,000 in San Diego to $651,000 in the SF Bay Area. The combination of relatively high and increasing prices and slow growth in regional income levels, has caused housing affordability to fall sharply. In the Sacramento Region, the Housing Opportunity Index (HOIómeasuring the percentage of homes sold that were affordable to a family earning a median income) dropped by over 17 percentage points in between the second quarters of 2013 and 2014. Statewide, the HOI fell by nearly 14 percentage points in the past year while Fresno saw the HOI drop at the greatest level, over 21 percentage points. The HOI fell by almost 7 percentage points at the national level.

Sacramento Remains One of the Most Affordable Regions in the State Despite Declines in the Housing Opportunity Index

Forty-nine percent of all homes sold in the Sacramento Region in the second quarter of 2014 were affordable to a family earning a median income. Every major and neighboring region in the state fell below the national average HOI score of close to 63 according to the latest data. In the coastal markets, less than one-quarter of homes sold in the second quarter of 2014 were affordable to a family earning a median income. These levels are still nowhere near the single-digit HOI scores seen during the last housing bubble, but certainly reflect pronounced housing affordability challenges.

A Variety of Company Types Represent SACTO Prospects; However, Most are Manufacturing-Related

SACTO has seen a 27 percent year-over-year increase in the number of companies it is actively working with on new business location and expansion projects in the Sacramento Region. The majority of active prospects are companies interested in establishing a manufacturing facility utilizing industrial sites. Service-related and distribution companies still represent a notable share of active prospect activity. These companies are interested in warehouse and office space in a number of different sub-markets across the Region.

Companies Originating From Other States Comprise the Largest Share of SACTO Prospects

Most of SACTOís active prospects, 39 percent, originate from outside the state (including Texas, Arizona, and Ohio), followed by 22 percent which originate from outside the country (primarily Western Europe and Asia). Recent trends show a slight uptick in the share of companies from Southern California. As the economy recovers and costs increase in major markets across the state, Sacramento is becoming more of a viable option for companies that would like to remain or expand within California.

The Sacramento Region Business Confidence Index Indicates that Business Leaders in the Sacramento Region are Slightly More Optimistic About the Regional Economy

The Center for Strategic Economic Research-Sacramento Business Journal Sacramento Region Business Confidence Index was established with the goal of publishing a quarterly survey that tracks business sentiment in the Sacramento Region. The survey is posted online the last month of each quarter by the Sacramento Business Journal, and a list of more than 13,000 subscribers are invited to respond anonymously with screening to reduce the likelihood of multiple individual responses. CSER analyzes the responses and creates and monitors the index scores.

Business sentiment improved slightly in the Sacramento Region during the third quarter of 2014 with the the Sacramento Region Business Confidence Index (BCI) score moving up to 65 from 64 in the previous quarter (the score is measured on a scale of 0 to 100 with anything above 50 representing positive sentiment). The BCI score remains below high points seen in the second and fourth quarters of 2013 where the Region saw scores of 66. Three of the four components that make up the BCI, measuring perceptions of industry conditions and the regional economy overall, improved in the third quarter of 2014 while the remaining component experienced a decline. The BCI results, which act as an indicator for regional economic performance, suggests modest improvement in the Sacramento economy in the short-term future. Just over half (53 percent) of third quarter 2014 BCI survey respondents felt that conditions in their specific industry improved over the past six months. This was a notable decline from last quarter where around 65 percent of all respondents provided similar positive responses. This 12 percentage point decrease moved the related BCI score down five points from 65 to 62. About 56 percent of survey participants anticipate continued improvement in their industry in the next six months, a slight increase from the previous quarter where around 55 percent of the respondents provided optimistic responses. This change increased the related BCI score by one point to 64. Approximately 62 percent of the third quarter survey participants stated that conditions in the overall regional economy are better than they were six months prior. This particular measure saw a notable increase in the share of positive responsesólast quarter 55 percent felt that conditions had improved, leading to a two-point increase in the related BCI score to 65. Looking into the next six months, close to 68 percent of survey respondents believe that regional economic conditions will improve. In the second quarter survey, only 66 percent provided an optimistic outlook, shifting the related score up to 68 from 66.