Last year was a strong year for California’s $3.4 trillion economy.
The state has added 621,400 jobs, finally regaining some 3 million people initially lost during the COVID-19 pandemic as Governor Gavin Newsom shut down key economic sectors. The unemployment rate ended 2018 at a near record low of 4.1%.
“California continues to lead the U.S. economy,” Mr. Newsom boasted after the December jobs report was released this month. He previously predicted that if California were a nation, it would come close to overtaking Germany as the world’s fourth-powerful economy.
all good. In fact, some economists believe that California’s job growth is so strong that the shortage of workers due to the decline in California job seekers is the only major obstacle to expansion.
That’s the economic advantage.
On the downside, no one knows if the good times will continue or if the state will experience a cyclical recession on the order of once every decade.
Over the past few months, the Federal Reserve has tried to keep inflation in check by raising interest rates. The hope is that the economy will cool enough to keep inflation in check and avoid a precipitous dip into recession.
It is not yet clear whether the system’s efforts will work as planned, and not only because of the Federal Reserve’s actions, but because of other factors such as the war in Ukraine, economists are skeptical about what will happen economically for the country. I’m confused by the predictions about what lies ahead.
Newsom’s proposed budget for 2023-24 reflects that uncertainty.
“Inflation and the uncertain future trajectory of Federal Reserve policy pose short-term risks,” the budget declares. “If high inflation lasts longer than expected or if Federal Reserve policy triggers a pullback for businesses and individuals, the economy could slip into a mild recession.
“This could lead to a sharp decline in investment and interest rate-sensitive consumption, which could result in a sharp decline in economic growth, lower non-agricultural employment and personal income growth. ”
“The biggest economic threat is continued inflation,” claims an analysis from the California Institute of Public Policy. “December consumer data shows inflation slowing for the sixth month in a row, but prices have yet to fall far enough. It will likely continue to take measures to slow the economy, increasing the risk of a recession.”
Recession fears and other factors are already impacting the budget, turning what Newsom and lawmakers thought last summer’s nearly $100 billion surplus was largely due to taxes from the upper income classes. A sharp drop in projected revenues is turning it into a multi-billion dollar deficit. Californian.
The most powerful driver of California’s economy, and thus the state’s revenue stream, is the Bay Area-centered technology industry, whose major companies have shifted their operations to accommodate the shift to working from home during the pandemic. After the expansion, we are making significant headcount reductions through layoffs. .
Despite the cutbacks, employment continued to grow in the region during December. In fact, 84% of the jobs California gained that month attests to the various economic signs the state is experiencing.
“I don’t think there’s a technology catastrophe,” said Patrick Cullerman, vice president of research at the Bay Area Council Economic Institute. ”
While economists debate the future of the economy and politicians in the Capitol debate how to deal with the expected deficit, their voters are getting sullen.
A November poll by the California Institute of Public Policy found people to be very pessimistic about the economy. Sixty-nine percent of Californians surveyed expect bad times next year, and 62% expect unemployment to rise over the next five years.
Dan Walters is a columnist for CalMatters.
https://www.siliconvalley.com/2023/01/29/walters-californias-economy-surges-but-the-future-is-cloudy/ California’s Economy Soars, But Future Uncertain