Abstract:THE CALIFORNIA ECONOMIC OUTLOOK Christopher Thornberg, Senior Economist, UCLA Anderson Forecast Overview: A Booming Economy? If you look at the surface, it would be hard to think that there is anythin...THE CALIFORNIA ECONOMIC OUTLOOK Christopher Thornberg, Senior Economist, UCLA Anderson Forecast Overview: A Booming Economy? If you look at the surface, it would be hard to think that there is anything wrong in California. The labor markets are kicking along, unemployment is falling and incomes are on their way up. The housing market continues to boom along, with median prices continuing to rise and housing permits hitting 160,000 in September, up from 153,000 at that point last year. Taxable sales are also on the rise; the first half of 2005 saw total spending on taxable goods rise by 7% over the same period of 2004. Overall general fund revenues are growing at a double digit pace over last year (14% through September, fiscal year-to-date 2005-06 over fiscal year-to-date 2004-05) led by surprising increases in corporate taxes, but also income and sales taxes. The growth in state revenues is considerably faster than the Department of Finance (DOF) had originally forecast. DOF, like the UCLA Anderson Forecast, has been amazed at the buoyancy the economy is showing. The issue is simple. While things are booming at the surface, the important mechanisms that drive a healthy economy forward are not showing the kind of numbers that would generate this level of spending in our economy. What we have in California is an economy that is being driven forward by housing, and what is of worry is that housing by late 2005 was showing signs of having peaked. The outlook for 2006 is dominated by the housing question. With a falling dollar and rising international demand for U.S. and state exports, California will feel some gain in the important external side of the economy. This effect will be offset by a weakening housing sector, a slower pace of building, and slower consumer spending. At best, 2006 will continue to be a year with a slow-growth economy, but the signs of this slow growth will be more obvious, particularly on the public revenue side of the equation. At worst, if housing cools rapidly, it could slow the economy sharply. In either case, we can expect many of the problems that the state’s legislative bodies have been largely able to ignore in the current economy: fiscal reform, business climate issues, and a terrible shortage of low-income housing. These issues will dominate the headlines again. Employment and Income: A Moderate Recovery June 2005 was a milestone for the California economy, as payroll employment finally caught up and passed the previous peak hit prior to the tech bust that began in 2000-01. Total payroll employment in September 2005 was 15.18 million (seasonally adjusted), eighty thousand more jobs than what we had in January 2001. (Figure 1) It was also a milestone inasmuch as the number of payroll jobs has been expanding within every major economy inside the state for the first time since 2000.Read More
Publication Year: 2006
Publication Date: 2006-01-01
Language: en
Type: article
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