California economy: Modest growth this year with rebound in 2024

California’s economy will see modest growth this year but a rebound is expected in 2024, according to a newly released forecast from the Los Angeles County Economic Development Corp.

The report says the Golden State is moving beyond a pandemic-related recovery and will instead be impacted by global supply chain instability and the Federal Reserve’s interest rate hikes, which have created “real concerns that a policy overcorrection may lead the United States into a recession.”

The report says the possibility of “a shallow recession” would create its own problems in terms of business closures, job losses and reductions in household income and tax revenue.

A number of signs indicate California has discovered its “new normal,” the forecast said, with employment indicators near pre-pandemic levels and discussions of consumer spending refocused around cooling demand to temper high inflation.

The state’s economy is expected to see 0.3% growth this year. That falls below 2022’s rate of 0.5%, but the report predicts next year’s GDP — the value of all goods and services produced during the year — will grow by 1.5%.

California’s job growth will slow to 0.8% in 2023, the report said, which lands well below the 5% gain seen last year and a 3.2% uptick in 2021. It should be noted, however, that those two years followed a 7.1% decline in 2020 when the COVID-19 pandemic prompted temporary business closures and scores of layoffs.

Employment growth in 2024 is expected to dip to 0.2%.

California’s biggest 2022-2024 job gains are expected to come in educational and health services (142,000 jobs), followed by government (28,500) and leisure and hospitality (24,700).

On the downside, the LAEDC predicts manufacturing will shed 27,300 jobs over that two-year period, while trade, transportation and utilities will lose 17,400 jobs and construction and mining payrolls will be off by 13,400 jobs.

California’s unemployment rate will average 4.9% in 2023 and 5.5% next year as the state’s economy continues to cool, the forecast said. That represents a slight increase from 4.4% last year, but a huge decline from 10.2% in 2020.

Personal income growth for California residents is expected to rise 4.1% this year after falling by 0.5% in 2022, and next year is looking better with an expected increase of 4.4%.

The report also shows the state’s housing affordability rate — the percentage of households that can afford to by a median-priced, single-family home — has fallen to 18%.

And renters, which occupy 44.1% of California’s housing units, are spending an “overly large portion of their incomes” on housing. Nearly 55% percent of rental units in California are cost-burdened, the report said, meaning renters are paying 30% or more of their income on rent each month.

Los Angeles County

Deeper challenges are predicted for Los Angeles County, where the economy is expected to contract by 0.2% this year, followed by a 1.3% increase in 2024 as inflation cools and the Fed slows down interest rate hikes.

Job growth is expected to remain static at 0.2% this year and in 2024. That follows the tumultuous swings the county saw over the last couple of years, with an 11.8% plunge in 2021 and a 5.4% gain last year.

L.A. County’s unemployment rate is expected to average 6.4% this year and 6.7% next year — considerably higher than California’s jobless rates of 4.9% and 5.5% for the same period.

County residents will also see slimmer increases in personal income, the study said, with an increase of 0.1% this year and 2.3% in 2024.

L.A. County’s biggest employment growth for 2022-2024, like the state, will be in educational and health services. That industry is expected to add 25,300 jobs over the two-year period, while professional and business services will add 5,700 and construction and mining will add 2,100 jobs.

Manufacturing will weather the biggest decline with a loss of 9,100 jobs, followed by trade, transportation and utilities (down 5,800 jobs) and leisure and hospitality (down 3,100).