The Sacramento Region continued its recovery during year 2004-2005 as state government renewed its budget spending. Year 2005 showed hiring trends in the government sector and the regional economy. Bouyed by a favorable interest rate environment, the regional economy added jobs, and was finally supported by an emergence of government hiring overcoming recent hiring freezes.
Figure 1 shows total wage and salary employment under the revised reporting standard. Annualize job growth, shown on the right column, indicates job growth at 14,000 new jobs..
Figure 2 shows all state government employment regionally, and further indicates a sector in growth mode. State government employment is basic to the region and forecasts continued prosperity in the area. The governor's current budget proposal appears expansionary suggesting the rate of state hiring could improve. Given the continued structural deficit and likelihood of increased spending beyond the aggressive proposals for the state's infrastructure, the expectation for tax increases is high. California's income tax structure heavily burdens higher income tax payers, so these expected tax increases should not impact the larger group of regional home buyers, with the exception of higher income buyers...
Of further concern is the rapid slowdown in computer and electronic product manufacturing. Once Sacramento's future. this sector suffers from the lack of labor investment and trends toward outsourcing and off shoring that is restructuring the national economy.
Figure 3
Federal government employment looks stabilized as shown in Figure 4. Yet this level of Federal employment has lost the economic impact of the three military bases that used to provide fundamental support to the region.
Figure 4
Detail on the employment impact of information services is a beneficial by product of the new reporting schema. Employment in the "so-called" information sectors rebounded during 2005, which represents an induced employment gain resulting from improved conditions in the state government sectors, as shown in Figure 5.
Figure 5
Given the employment trends outlined above, REA expects an improved economic outlook for the Sacramento regional economy. Positive employment conditions forecast solid demand for housing, and strong conditions in the real estate markets. These changes in underlying demand, will countervail the downward forces created by increased fiinancing costs. The overall consideration, then, will be for support of housing prices, and not foreseeable expectation of a housing bubble collapse, as has been predicted by many media outlets. Changes in financing conditions, which have been delayed, are certainly in the offing for 2006, and most remain surprised that the adjustment has taken so long, much to the benefit of purchasers.
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