California Economic Outlook: Blowback
The Golden State’s outlook is actually less than golden. The trade war between the U.S. and China has negative implications for California, which would have the fifth-largest economy in the world if it were a country. Around half of U.S. trade with China currently passes through Los Angeles area ports.
Agricultural exports from the state’s Central Valley could suffer because they are on the list of goods subject to retaliatory tariffs by China.
Indeed, a study from the University of California, Davis, estimates that higher tariffs may cost major U.S. fruit and nut industries $2.6 billion per year in exports to countries imposing higher tariffs, including China. In addition, Bay Area tech companies are also in the crosshairs. For example, higher tariffs mean higher component costs. That could ultimately push prices of devices higher and reduce demand.Sputtering jobs engine
California’s job growth engine is not dead yet, but it is sputtering. Job growth year-on-year slipped below the national rate in December 2018, after exceeding U.S. growth for nearly seven years. Annual job growth in California has moderated for three consecutive years, and the slowdown is projected to continue through 2020.
For more insights, see highlights of my report below, followed by a link to the California Economic Outlook.Key observations:
- California’s unemployment rate rose to 4.3% in April 2019 from an all-time low of 4.1% in July 2018. It is expected to average 4.9% by 2020, the highest since 2016.
- Job growth is forecast to moderate across all regions in 2019 and 2020 except for the Central Coast where some acceleration is expected in 2019. The slowest job growth is forecast in Southern California over both years.
- California’s home price increases will moderate to more sustainable rates of around 2.0% over the next two years due to decelerating job growth, slowing economic activity, continued out-migration, and weak population growth.
Read my full report.