Jul. 31—Observers of Kern County's economy say the gathering clouds of inflation and rising interest rates may combine to slow local business activity in the quarters ahead but that there's still no telling how severe the impact might ultimately be.
Some say the area may be better prepared now to weather a possible recession than it was during the last one in 2007-09. There's concern, though, that some local businesses are heavily exposed to two growing factors: debt-reliant business operations and habitual consumer purchases on credit.
There's hope businesses that have already endured so much, like shipping bottlenecks and other pandemic-era obstacles, are in relatively good financial positions thanks in part to government relief checks and lessons learned during the last two years.
Such optimism is bolstered by the fact that Kern's seasonally unadjusted unemployment rate has hovered lately between 6 percent and 7 percent, significantly below its traditional double digits.
Still, for all the progress being made in diversifying the local economy, local observers say the outlook generally points to limited business expansion, lower home prices and reduced discretionary spending, which could hit some of the same businesses that have suffered most during the coronavirus crisis.
Whether the county's continued reliance on oil and ag will be a help or hindrance is unclear. Farming can run in cycles counter to a recession, and so can oil, but there's worry restricted water supplies and difficulties securing drilling permits could limit those industries' local contributions, at least in the near term.
Meanwhile, it may become important in the near term that local consumers try harder to support small, independent businesses, Diandra Ko, senior vice president and small business banker manager at Bank of America, said by email.
"As consumer spending is crucial to the success for local small businesses and their ongoing economic recovery, my advice to consumers is to shop small whenever possible, because when small businesses thrive, so do our communities," she wrote.
"As they face a future filled with new and evolving challenges," Ko continued, "small business owners will continue to look to community patronage and support from family and friends to carry them through uncertain economic headwinds."
She suggested small businesses watch their long-term cash flow and budgeting when they weigh 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 eating into 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 dropping out of the workforce to cover the ongoing child care shortage. Setbacks like that also reduce household incomes.
Home prices look to slide, Gearhart wrote, as more homebuyers get priced out of the market. But he suggested a bigger problem may have to do with day-to-day consumer spending that utilizes credit cards.
"We should anticipate depressed consumer spending," he wrote. "This will be very problematic."
"If we have fewer consumers because of higher inflation prices AND because the cost of borrowing has increased, consumer spending is going to crater," he wrote. "And that's going to be really bad."
Consumers may need to brace for higher prices at restaurants and other leisure and hospitality businesses. Chain restaurants should do fine but Gearhart said diners can look forward to higher prices at their favorite local restaurants.
Bakersfield-based Valley Strong Credit Union sees Kern's economic outlook as positive with respect to recent collaboration on applications for millions of dollars in state economic development grants.
President and CEO Nick Ambrosini pointed as well to an upcoming event that will spotlight the county's broad efforts to rethink a local economy that has for too long depended on oil and ag but that has significant potential in areas such as renewable energy, aerospace, manufacturing and business support services.
"We're all watching how the economy is playing out on the national stage, and nobody truly knows what is going to happen," Ambrosini stated. "However, when you look at how our county is faring, there's much to be hopeful about, including what's happening with the application process for the state-funded CERF (Community Economic Resilience Fund) grant. And of course, we also will benefit from the California Economic Summit which will be hosted in Bakersfield this fall."
He added the credit union is in a strong financial position, "well capitalized and careful stewards of our members' money."
President and CEO David King of Bakersfield-based Safe 1 Credit Union said by email he takes a mixed view on Kern County's immediate prospects.
He noted unemployment rates are at historical lows, and the county's economy has expanded in sectors other than oil and ag, whose substantial challenges he acknowledged.
Businesses that don't rely much on debt for daily operations or expansion won't be impacted as much, King predicted. But many do, he pointed out, and their reliance on variable rates will raise their costs.
Business expansions will slow and consumers will delay big-ticket purchases that have to be financed — but inflation's the real killer, he wrote.
Loan delinquencies would be an early sign of economic deterioration, and though borrowers are mostly keeping up with their debts, King wrote, rates of people falling behind "are definitely climbing."
Noting that lending institutions are in better shape than they were in the last recession, he expressed hope they will put customers ahead of financial returns.
"I'm hopeful more and more financial institutions will apply 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.
