The California economy will maintain strong growth despite soft U.S. economic growth and a deepening drought, according to the latest projection from the Center for Business and Policy Research at the University of the Pacific. The latest forecast boosts its projection of 2015 job growth in California to 2.8 percent, up from 2.3 percent in the January forecast. With the State’s unemployment rate projected to drop below 6 percent by the end of the year, more moderate 1.8 percent job growth is anticipated in 2016. New home construction is beginning to pick up. Housing starts are projected to exceed 100,000 units in 2015, and grow to more than 150,000 units in 2017.

While the drought is having substantial impacts on the environment and lifestyles, its economic impacts remain relatively small and should remain below 0.25 percent of gross state product even as conditions worsen in 2015. The Central Valley posted strong growth in 2014, and the first half of 2015 as the agriculture industry is showing resilience against the drought, and the housing market and government sector recovers. Most Central Valley metro areas will average single-digit unemployment in 2015, including Fresno, an area that has only seen an unemployment rate below 10 percent in three of the past 25 years.

The regional outlook finds the Bay Area continues to have the hottest economy in the State. The tech-driven San Jose area is on pace for rapid 5 percent job growth in 2015 with San Francisco not far behind at 4.2 percent as companies remain undeterred by extreme housing costs and a tightening labor market in the Bay Area. Its projected that these constraints to growth could cut the pace of Bay area growth in half by 2016, but still remain vibrant and leading the State’s economy. The Sacramento area continues its slow and steady recovery, and will finally recover its pre-recession employment level by the end of 2015, the last of California’s 10 largest metro areas to achieve this benchmark.

The Center for Business and Policy Research at the University of the Pacific was founded in 2004, and was known as the Business Forecasting Center until March 2015. Housed in the Eberhardt School of Business, the Center produces economic forecasts of California and eight metropolitan areas in Northern and Central California, in depth studies of regional issues, and offers custom economic research services to public and private sector clients.