California Economic Outlook – April 2019
Job growth in the Golden State had exceeded U.S. employment growth for nearly seven years, from February 2012 to November 2018. However, California job growth in December dipped below U.S. growth and the difference widened in January.
Below is a top-level summary of the report, followed by a link to the full report.
- California’s unemployment rate fell to an all-time low of 4.1% in June and remained there through December. The rate, however, ticked up to 4.2% in January, the first increase since October 2010.
- Annual job growth peaked at 3.0% in 2015 and has now decelerated for three successive years. California job growth is forecast to average 1.2% this year and will weaken to just 0.5% 2020. A slowing global economy, lack of affordable housing, out-migration and the high cost of doing business will collectively weigh on employment growth. The slowdown in job growth will drive the California unemployment rate up from 4.2% last year to 4.4% in 2019 and 4.8% in 2020.
- Housing demand in California remained soft in January with existing single-family home sales declining 12.6% from a year earlier. This is the ninth month in a row of year-on-year decline and the sixth consecutive month with sales below 400,000. California housing starts are forecast to decline 4.0% this year and fall 4.5% in 2020.
- The surge in the supply of existing homes for sale and higher mortgage rates are causing home price gains to moderate. The statewide median home price was $538,690 in January 2018, up just 2.1% from a year ago. Home price growth is expected to moderate to 2.5% in 2019 and just 1.5% in 2020.
- There has been net out-migration in California over the last two years as more California residents leave the state due to the high cost of living, increasing congestion and deteriorating infrastructure. This will persist through 2020 and limit the state’s growth rate.
- Year-to-date state tax collections from three of California’s largest sources – the personal income tax, corporate tax and sales tax – are running $2.4 billion or 3.2% below expectations. However, there are reasons to believe the shortfall will be made up in April. For example, the elimination of the incentive for many tax filers to pre-pay state and local tax payments in December should result in additional payments being made in April 2019.
- If California tax collections don’t rebound as expected in April, the year-to-date budget deficit would widen and could result in new budget cuts in next year’s budget cycle. The reduction in budget outlays, if they occur, could coincide with an already slowing state economy and exacerbate the state’s economic slowdown.