California saw solid gains in leisure and hospitality, health care, social services, technology and construction in 2021, and the state’s economy will be further strengthened by increased defense spending and ongoing demand for technology, a new report says.
The latest UCLA Anderson Forecast warns that the state faces economic headwinds as a result of slow national growth, but it still posted the nation’s second highest GDP growth (6.3%) between the pre-pandemic fourth quarter of 2019 and the first quarter of 2022.
California easily outpaced rivals Florida (5.3%) and Texas (3.5%) during that period, ranking second only to Washington state, which held the top slot with GDP growth of 6.9%.
The report places California’s GDP — the total value of its goods and services — at $3.36 trillion, making it the world’s fifth largest economy if it were a country.
California’s unemployment rate for the third quarter of this year is expected to be 4%, the report said, and the averages for 2022, 2023 and 2024 are expected to be 4.3%, 4.4% and 4.8%, respectively.
The Anderson report predicts total employment growth of 4.9% for 2022, 1.5% for 2023 and 0.7% for 2024.
Foreign investment, venture capital
The forecaast notes that those “with skin in the game” are betting on a robust California economy in the future.
In 2021, foreign direct investment in California (about $63 billion) was 19% higher than Massachusetts, 87% higher than New York and 81% higher than the total of Texas, Maryland, Florida, Michigan and Ohio combined.
Venture capital investment in California (nearly $160 billion) dwarfed all other states, the study said, and was three times as much as New York, four times that of Massachusetts and 17 times greater than Texas, the next three states by dollar volume.
Housing markets are down
The median price for a single-family home in California — the midway point between all sales — was $839,460 in August, according to the California Association of Realtors. That was 7% below its previous peak earlier this year, the report said. But home prices have risen elsewhere, narrowing the price gap between California and other states.
Since 2016, for example, the price differential between Los Angeles and Boise, Idaho has fallen 35%, while the price difference between L.A. and Phoenix and Austin has eroded by about 20%.
Slowing U.S. growth will present certain issues for California.
“Our forecast is now a bit weaker than three months ago,” UCLA researchers noted. “Further risks to the forecast are the course of the pandemic and domestic migration on the downside, and increased international immigration and accelerated onshoring of technical manufacturing on the upside.”
Edward Leamer, a UCLA professor and co-author of the report, said California’s housing and manufacturing sectors look troubled. But he’s not troubled — at least for now.
Housing production since 2009 has been below the historically normal number of 1.5 million new units per year, and never in the 2 million range like earlier excesses. In other words, Leamer said, California is not overbuilt.
As for manufacturing, the share of jobs in manufacturing has declined from more than 30% in the 1950s to only about 8% now. That greatly reduces the role of manufacturing in recessions to come, he said.
In the previous Anderson Forecast in June, Leamer added that it’s “unlikely there will be a recession in the next 12 months,” in spite of rhetoric to the contrary.
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