California Economic Outlook – September 2018

Scott Anderson
Posted by Scott Anderson
Chief Economist

California’s job creation continues to outpace that of the United States as a whole, a trend that has been firmly in place since March of 2012. But California job growth peaked at 3.0% in 2015 and has been decelerating annually since then.

View of downtown Los Angeles, with semi-crowded freeway in the foreground on a sunny morning.Below is a top-level summary of the report, followed by a link to the full report.

  • Job growth is forecast to slow from 1.8% this year to 1.2% in 2019 and just 0.5% in 2020 due to weaker global growth and tighter financial conditions.
  • Among the four regions job growth in the Bay Area is expected to be the strongest this year at (2.0%), followed by the Central Valley (1.9%), the Central Coast (1.8%), and Southern California (1.4%).
  • Job growth is expected to decelerate in all four regions of California in 2019 and 2020, while the Bay Area is expected to become an under-performer in job creation as high costs of living and doing business weigh more heavily, net migration turns negative, and Silicon Valley faces new headwinds from trade protectionism and regulatory oversight.
  • The California unemployment rate fell to an all-time low in April of this year and has remained there. As job growth slows in 2019, the unemployment rate is projected to rise from 4.2% in 2018 to 4.7% in 2020.
  • The California housing market continues to cool off, with sales of existing homes in California declining for three consecutive months. A lack of inventory until recently, however, is pushing prices higher with the July median home price just 0.5% below the May 2007 peak.
  • More existing home inventory is now coming on the market, with the number of statewide active listings rising for the fourth consecutive month after declining for 33 consecutive months. This along with rising mortgage rates will lead to a moderation in home price growth out to 2020.
  • Net migration across all four regions and the state is projected to turn negative in 2019 and remain there in 2020 due to deterioration in the state’s relative economic performance, the high cost of living, and congested freeways. This will weigh on housing demand, especially in Southern California.
  • The Trump Administration’s protectionist measures thus far have focused mainly on China, an important destination for California exports and driver of California port activity. This is an evolving downside risk to the California economy in 2019.
  • An analysis by the Brookings Institution reveals that California employs 287,000 workers in industries targeted by China’s initial $50 billion in retaliatory tariffs.
  • The study showed California counties most impacted by the tariffs have higher-than-average unemployment rates. Therefore, the protectionist trade policies are more likely to result in increased economic insecurity for communities in California that are already struggling.

To learn more and see our detailed forecasts and analysis for the California outlook through 2020, check out this quarter’s full California Outlook Report.

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