California Outlook Report – June 2020
We are forecasting the deepest U.S. and global recession since the Great Depression and California’s economy will not be spared from the pandemic’s economic and financial damage.
California jobs are projected to plunge 14.5% year/year in 2020. The initial shock is primarily coming from the widespread business shutdowns and shelter-at-home orders issued to help contain the virus spread and deaths.
California consumers have already pulled back rapidly in their spending, and California’s initial jobless claims have soared by almost 4.7 million since March 21st – this is nearly equivalent to the 4.9 million jobs lost in California during the entire 18-month Great Recession.
This is only the start. State tax revenues are collapsing on lower sales and income tax receipts and will lead to gaping budget deficits in short order. State and local spending is expected to fall sharply to help balance the state budget, further weighing on California’s job creation and forcing unemployment rates even higher.
The state had a rainy day fund of around $21 billion, for just such economic emergencies, but it will be quickly exhausted given the size and scope of the current economic shock. Indeed, the California Finance Department announced in early May that it was forecasting a $54 billion budget deficit for the fiscal year beginning on July 1, 2020 as personal income taxes drop 25.5%, sales and use taxes decline 27.2% and corporate taxes fall 22.7%.
Unprecedented levels of unemployment will itself be a barrier to California’s ability to fully recover from this crisis, slowing the pace of economic recovery into 2021 and beyond. California’s unemployment rate already jumped in April to 15.5%. California’s unemployment rate is expected to remain elevated and average 10.6% in 2020 and 9.1% in 2021. California’s unemployment rate will move even higher than April’s level, if a second wave of widespread virus lockdowns occurs in the fall.
The demand for housing in California is forecast to weaken significantly through 2021, primarily because of rising unemployment, recessionary U.S. and global economies, and continued strong out-migration. Builders will respond to weaker demand by pulling back on construction with housing starts forecast to plummet 36.0% this year and decline another 10.3% in 2021.
California home prices are projected to increase a relatively modest 0.2% this year and decline 1.8% in 2021 on weaker housing demand and swelling unemployment. The lack of housing supply going into this crisis is expected to help moderate the home price declines seen across the state compared to the last recession when aggressive lending and leverage and speculative homebuilding caused widespread and severe home price drops.
To find out more and view more detailed forecasts for California and its major economic regions, check out the California Economic Outlook June 2020.