Kern County economy watchers say the looming clouds of inflation and rising interest rates may combine to dampen local business activity in the coming quarters, but not yet say how severe the impact could be.
Some say the area may be better prepared for a possible recession now than it was during the last one, in 2007-09. There is concern, however, that some local businesses are highly exposed to two growing factors: business operations that rely on debt and regular consumer purchases on credit.
There is hope that companies that have already suffered so much from shipping bottlenecks and other pandemic-era hurdles will be in relatively good financial shape thanks in part to government relief controls and lessons learned over the past two years.
That optimism is bolstered by the fact that Kern’s seasonally unadjusted unemployment rate has recently hovered between 6 and 7 percent, significantly below its traditional double digits.
Still, despite all the progress being made in diversifying the local economy, local observers say the outlook generally points to limited business expansion, lower housing prices and reduced discretionary spending , which could affect some of the same companies that have suffered the most during the coronavirus crisis. .
It’s unclear whether the county’s continued reliance on oil and agriculture will be a help or a hindrance. Agriculture can operate in recessionary cycles, and so can oil, but there are concerns that constrained water supplies and difficulties in obtaining drilling permits could limit the local contributions of these industries, at least in the short term .
Meanwhile, it may be important in the short term for local consumers to do more to support small and independent businesses, Diandra Ko, senior vice president and director of small business bankers at Bank of America, said by email.
“Because consumer spending is crucial to the success of local small businesses and their continued economic recovery, my advice to consumers is to shop small whenever possible, because when small businesses thrive, so do our communities,” he wrote.
“As they face a future full of new and evolving challenges,” Ko continued, “small business owners will continue to seek community sponsorship and the support of family and friends to lead them to through uncertain economic winds.”
He suggested that small businesses keep an eye on their cash flow and long-term budgets when weighing financing options. Put the customer experience first, offer cashless payments and monitor cash flow online or with a mobile tool, Ko advised.
Cal State Bakersfield economist Richard Gearhart sees inflation dragging down real wages, especially for lower-income workers. That could force wage increases in negotiated labor contracts, he said by email.
Another outcome he predicted is families with one parent leaving the workforce to fill the childcare shortage. Mishaps like this also reduce family income.
Home prices appear to be falling, Gearhart wrote, as more homebuyers exit the market. But he suggested a bigger problem might have to do with the day-to-day spending of consumers using credit cards.
“We must anticipate depressed consumer spending,” he wrote. “This is going to be very problematic.”
“If we have fewer consumers because of higher inflation prices AND because the cost of borrowing has increased, consumer spending will increase,” he wrote. “And that’s going to be really bad.”
Consumers may need to prepare for higher prices at restaurants and other entertainment and hospitality businesses. Chain restaurants should do just fine, but Gearhart said diners can expect higher prices at their favorite local restaurants.
Bakersfield-based Valley Strong Credit Union sees Kern’s economic outlook as positive for recent collaboration on applications for millions of dollars in state economic development grants.
President and CEO Nick Ambrosini also pointed to an upcoming event that will highlight the county’s broad efforts to rethink a local economy that has too long been dependent on oil and agriculture, but has significant potential in areas such as renewable energy, aerospace, manufacturing and industry. business support services.
“We’re all watching the economy play out on the national stage, and nobody really knows what’s going to happen,” Ambrosini said. “However, when you look at how our county is doing, there is a lot of hope. , including what is happening with the state-funded CERF (Community Economic Resilience Fund) grant application process. And, of course, we will also benefit from the California Economic Summit in Bakersfield this fall.”
He added that the credit union is in a strong financial position, “well capitalized and a careful steward of our members’ money.”
Bakersfield-based Safe 1 Credit Union President and CEO David King said by email that he has a mixed view about Kern County’s immediate outlook.
He noted that unemployment rates are at historic lows and that the county’s economy has expanded in sectors other than oil and agriculture, whose substantial challenges he acknowledged.
King predicted that companies that don’t rely heavily on debt for day-to-day operations or expansion won’t be hit as hard. But many do, he noted, and their reliance on floating rates will increase their costs.
Business expansions will slow and consumers will delay large purchases that need to be financed, but inflation is the real killer, he wrote.
Loan defaults would be an early sign of economic deterioration, and while borrowers are mostly keeping up with their debts, King wrote, the rates of people falling behind “are definitely going up.”
Noting that lenders are in better shape than they were in the last recession, he expressed hope that they will put customers ahead of financial returns.
“I expect more and more financial institutions to implement many of the same relief measures they instituted during COVID to help their members/customers in need should we have a downturn in the near future,” King wrote.