Dubroff: With California in decent shape the good times will roll on into 2015
Henry Dubroff
Not all recoveries are created equal.
As the Central Coast economy enters 2015 well into the fifth year of a rebound that began in the summer of 2009, the ups and downs of the past decade may cause one to obsess about when things might come to an abrupt end.
But are such worries premature? There was plenty of nail-biting in the mid-1990s, but that expansion kept on trucking until the dot.com crash of early 2000, making it 10 years from the mild recession of the early 1990s to the next downturn.
Growth cycles in the 1960s and 1980s went on for seven and eight years respectively, before they hit the wall. Forecasting is a dangerous game, but from this writer’s perspective, the relative good times enjoyed by the Central Coast during the past year should continue into 2015.
Here are four themes that the Business Times will be watching out for in the year ahead.
• The last shall be first. The region’s large industrial cities, Oxnard, Simi Valley and Santa Maria were among the last to emerge from the recession. As the expansion continues, they will be among the first when it comes to growing jobs, increased commercial real estate activity and rising retail sales. That’s because as housing in wealthier enclaves again becomes unaffordable, our overlooked industrial towns look increasingly attractive. And the rebound in manufacturing, particularly for the U.S. market, will produce new commercial real estate and capital investment. Haas Automation in Oxnard, Zodiac Aerospace in Santa Maria and a couple of new players in Simi Valley will lead the way. With a combined population approaching 500,000 Oxnard, Simi Valley and Santa Maria represent nearly a third of the region’s economic clout.
• Exports are the key for agribusiness. New rules for trade with Cuba, a potential Pacific Partnership with leading Asian nations and reduced transportation costs due to cheaper fuel will help farmers and winemakers reap the rewards of globalization. With the rising dollar making exports more expensive and European demand weak, our exporters, notably Deckers Outdoor and Patagonia, will have to be on their toes when it comes to cost competitiveness. But improved efficiencies and better use of the Port of Hueneme, a gem when it comes to agricultural exports, will help.
• Capital has gotten easier to raise. The region feasted on the IPO boom last year with Sientra, Inogen and others raising millions of new funding. Crowdfunding campaigns and venture capital raises were successful for many firms. And companies such as CMC Rescue and Hardy Diagnostics have found employee ownership to be a way to attract capital for expansion and in-region stability. Not to be ignored is the battle among commercial banks for viable middle market companies. That competition, which stretches into the ranks of larger small businesses, is keeping the cost of borrowing down for quality credits.
Finally, one thing that doesn’t keep me up at night is the Federal Reserve and its multi-trillion dollar balance sheet. The balance sheet will shrink slowly as bonds mature and the Fed is hugely motivated to create a smooth take-off for the economy; that would be the inverse of the so-called soft landing it engineered in the 1990s.
To get some wiggle room, Federal Reserve Chair Janet Yellen has done a good job of creating some constructive ambiguity in language that enables its Open Markets Committee to test moves without actually taking them.
In the perverse logic of central banking, raising interest rates gently at the short end of the curve may actually suppress longer-term rates as inflation expectations drop. That would prop up the housing market and weaker corporate borrowers.
The New Year begins with California in its best economic shape in a decade or more. Let’s cross our fingers the good times continue to roll.
