Housing seems to be about the only local sector that was somewhat upbeat.
Resident economist for the Center for Economic Development at Chico State University, Gallo believes the housing price decline has pretty much "hit bottom."
As potential buyers and investors think they've seen prices go as low as they can, they'll start jumping back in the market. They'll also start buying new or existing homes that have sat on the market for months. Once existing homes start disappearing, local builders will start constructing new ones. That demand for homes will help push housing prices up.
"And lenders are willing."
At least five houses are under construction at Sierra Moon, off Hicks Lane. Builder Steve Schuster has houses under construction in the mid-$400,000 to high $600,000 range.
"People have been sitting on the fence. Now they're buying," Schuster told the Enterprise-Record earlier this month. "I think their confidence has made the difference."
Schuster also said he did lower prices.
House prices are important, Gallo said. For homeowners, falling prices on their homes make them feel less wealthy, so they spend less. He said every $100 loss in home price means $6 less in annual spending. Homeowners are increasing their savings rate as well, from the 1-2 percent of retail spending flurry in the 1990s to about 6 percent now.
But it also encourages house purchases, especially if the buyer doesn't think the prices will go any lower. The stability of mortgage interest rates — which are at historic lows — also helps nudge buyers.
"From an investor's point of view, this is an attractive situation," said Gallo, pointing to cash purchases of foreclosures.
If interest rates and points remain at current levels, Gallo said housing activity should rise.
Nevertheless, Gallo's overall estimation of the economy is that, "It's going to be a long, slow recovery."
Citing a Federal Reserve forecast, Gallo said the downturn could start reversing in 2011.
"The Fed is telling us it will be a slow rate of recovery, more gradual than usual."
With city officials sitting in the front row for the presentation, Gallo said he didn't have any good news regarding sales tax revenue.
"National retail spending is down 10 percent. In California and Butte County, the decline is more."
With personal income down from lost wages, furloughs and pay cuts, savings and spending cutbacks are still a priority.
Watching for a rise in economic health, Gallo says there's hope at the national levels. Increases are being seen in factory orders and manufacturing activity, which means businesses are using up inventory and will have more money in their pockets to pay overtime or even hire.
Gallo doesn't see a lot of changes in local hiring patterns though, predicting continuing unemployment about the same.
"We're a ways from seeing unemployment rates drop because new jobs aren't being created," Gallo said, predicting that unemployment will continue rising through at least the first quarter in 2010. At that time, job creation could kick in.
Gallo pointed out that small businesses are the source of most new jobs, but that their establishment and growth has relied on their ability to qualify for equity loans, often on their homes.
With housing price declines, those lines of credit have been drying up, handicapping small businesses' ability to expand.
Asked about a comparison with the Great Depression, Gallo suggested the current downturn could be lasting about 11 quarters, whereas the 1930s downturn extended 36 to 40 quarters.
Gallo also presented a summary of his renewal energy study, which indicated solar has potential for job growth in the north state, and savings from residential solar installations will continue to justify the cost.
The presentation was sponsored by the Butte Community Employment Center. The presentation is on the Center for Economic Development's Web site: www.cedcal.com (under events, past events).
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