Monday, November 28, 2005

Economic picture good for Solano County

Article Last Updated: 11/25/2005 07:54 AM

Economic picture good for Solano

By Rachel Raskin-Zrihen/Times-Herald, Vallejo

A temporary economic dip will likely mean deep discounts at some stores during the holiday shopping season which traditionally starts today, a university economist says.
Meanwhile, a Solano County expert sees everything coming up roses locally, particularly over the longer term.

Dr. Sean Snaith of the University of the Pacific's Business Forecasting Center, which released its fourth-quarter U.S. economic forecast Tuesday, said several conditions conspired in recent months to slam the brakes on the national economy.

Barring more of the same, however, Snaith predicts the slowdown is temporary, but its timing may benefit holiday shoppers as retailers slash prices to lure spending-wary consumers.

Considering the Fed's raising of interest rates several times lately, two devastating hurricanes and skyrocketing energy and gas prices, that the economy isn't in worse shape proves it's bullet-proof nationally and regionally, Snaith said.

"There have been dramatic fireworks, but the roller coaster ride is subsiding. It's making a soft landing back on solid ground,"he said.

Despite the shocks to what Snaith calls the nation's Kevlar economy, its overall growth rate for 2005 is expected to be 3.5 percent, he said.

Mike Ammann, president of the Solano County Economic Development Corp., said that while there's no escaping the higher energy costs this winter, Solano County is poised for significant growth in the next three to five years.

"We're in better shape in Solano County than pretty much anyone else in the Bay Area," Ammann said. "We have a stable unemployment rate at about 5 percent and a more diversified economy. We no longer face uncertainties like the closure of Travis Air Force Base. And, housing continues to be built."

Ammann also cited Triad Communities' downtown and waterfront projects in Vallejo and the Solano County Fairgrounds project probably kicking off in 2006.

"If you look up and down Interstate 80 in Solano County," Ammann said, "you see major development breaking ground in the next few years."

Ammann cites Genentech's $750 million expansion and its 500 added jobs in Vacaville, the improvement or expansion of most of the area's hospitals, Travis' nearly completed C-17 facility, renovations in Vacaville, Benicia, Dixon, Suisun, Fairfield and Vallejo and other projects, all either under way or ready to start.

Solano Community College, for example, has campuses coming out of the ground in Vallejo and Vacaville, Ammann said. In Solano, the next three to five years is planned, announced and pretty much going to happen.

But there's still the short-term 2005 holiday shopping season to weather. With record high energy prices predicted this winter, the consumer is getting squeezed at the pump, at the thermostat and at the light switch, Snaith said.

"This is going to put a squeeze on budgets and may cause people to trim their family's holiday spending."

Snaith said that anticipating this, middle- and lower-end retailers will slash some prices, likely starting today.

"Expect retailers to come up with real aggressive discounts to get people into the stores and shopping early. They're not going to wait to see how things go," Snaith said.

Even with drastically reduced prices, Snaith said, retailers should expect a flat holiday shopping season, which traditionally begins the day after Thanksgiving.

The bad news for retailers is that "Black Friday" - the day most retailers go into the black for the year - won't be as good as they may have hoped for, as consumers struggle with high energy bills, Snaith said. But as the post-hurricane impact starts to diminish and as the end of the year approaches, things should start to turn back around.

Snaith describes hurricanes Katrina and Rita, which ripped through the Gulf states in August and September, as a traumatizing shock to the national economy. The federal rebuilding efforts, however, should act as a fiscal stimulant in the first part of 2006, he said.

"We should see continued steady, level economic growth beginning with the new year," Snaith said.

Report highlights:

• Higher energy costs will result in the weakest growth in real fourth quarter spending by consumers since 2002, with the worst hit to consumer durables, particularly big-ticket items.

• Much of the retail sector is expected to pursue aggressive pricing strategies early this holiday season.

• Energy prices have fallen from the post-hurricane peak but will remain the cause of the weakest quarter of real Gross National Product growth in 2005.

• GNP growth should surge the first part of 2006 as reconstruction spending ramps up in the Gulf states.

• Housing starts will begin declining at a measured pace as the residential real estate market cools.

• Investment spending and hiring growth will continue to grow more slowly over the next several years in response to diminishing demand for products and increasing cost of capital.

• Spending at the federal level will grow at the slowest rate since 2000, but state and local expenditures will expand to their best growth rate since 2002.

• The dollar should continue depreciating for the next three years.

• Prices should remain under control but core inflation will continue growing at a contained rate for the next few years.

• Unemployment should remain low, consistent with stable prices, for the foreseeable future.

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