California Economic Outlook: Trade War Fallout

Scott Anderson
Posted by Scott Anderson
Chief Economist

California’s job growth unexpectedly accelerated recently, bucking a national slowdown trend. Consequently, we have revised our job growth forecast for the state to 1.4% for 2019 from our prior forecast in June of 1.2%. However, the longer-term outlook is still for slower job growth.

Less Traffic

The U.S. and China have added more tariffs in the past few months. This has increased the likelihood of a protracted trade war that will dent economic growth in both countries and in the State of California. The negative fallout from the U.S.-China trade war is beginning to show up in economic data. Total two-way maritime traffic is down 0.3% at the Los Angeles and Long Beach ports. These ports handle about half of all maritime trade with China. This does not reflect the additional tariffs of approximately $110 billion on Chinese imports that were put in place on September 1. They are likely to curb trade flows even further and could result in job losses at the state’s ports and transportation and warehousing hubs.

The expansion of the trade war to the technology sector is a significant headwind for technology companies in the Bay Area. The sector is already facing challenges from increased regulatory and anti-trust scrutiny. This clouds the economic outlook for the state and region because tech has been driving a significant share of California’s growth.

An analysis by the Bank of the West Economics Team finds California’s Central Valley farm sector has so far weathered the U.S.-China trade war. However, prolonged tariffs will likely hit both farm income and employment and become a bigger drag on Central Valley economic growth.

Slower Job Growth Ahead

Despite the recent uptick, annual job growth in California has slowed for the past three years. The slowdown is forecast to continue through 2020, with growth of 1.4% this year and only 0.7% next year. The forecast growth for 2020 would be the slowest since employment contracted 1.1% in 2010.

Job growth is expected to accelerate in the Bay Area and Central Coast in 2019 but slow sharply in Southern California and the Central Valley. The forecast for 2020 is noticeably slower growth across all four regions. California’s unemployment rate reached a one-year high of 4.3% in April but declined to 4.1% by July, matching the record low for the state. Unemployment in California is forecast to average 4.3% in 2019 and 4.6% in 2020 as job creation slows.

Read my full report.

Reminder: All comments are moderated prior to publication and must follow our Community Guidelines.

Submit an Idea

[contact-form-7 id="32" title="Share An Idea"]

You are leaving the Bank of the West Change Matters site. Please be aware: The website you are about to enter is not operated by Bank of the West. Bank of the West does not endorse the content of this website and makes no warranty as to the accuracy of content or functionality of this website. The privacy and security policies of the site may differ from those practiced by Bank of the West. To proceed to this website, click OK, or hit Cancel to remain on the Bank of the West Change Matters site.