Last year was strong for California’s $3.4 trillion economy.
The state added 621,400 jobs, restoring nearly 3 million jobs lost during the COVID-19 pandemic when Gov. Gavin Newsom closed the major financial sectors. Last year it was about 4.1% unemployment.
“California continues to lead the nation’s economy,” Newsom boasted after the December jobs report was released this month. He previously pointed out that if California were a country, it would almost certainly overtake Germany as the fourth most powerful country in the world.
All the best. In fact, some economists believe that job growth in California is so strong that the lack of workers – due to the low number of Californians looking for work – is the biggest obstacle to growth.
That’s economic growth.
What’s worse is that no one seems to know whether the good times will continue or whether the government will experience periodic recessions, which tend to hit once every decade.
For the past several months, the Federal Reserve System has been trying to reduce inflation by raising interest rates. The hope is that the economy will stabilize enough to moderate inflation but avoid recession.
It is not yet known whether the efforts of the system will work as planned and economists are mixed in their opinions about what will happen to the economy in this country, not only because of the actions of the Federal Reserve but also because of other things, such as the war in Ukraine.
Newsom’s 2023-24 budget reflects that uncertainty.
“Uncertain future trends in inflation and Federal Reserve policy pose short-term risks,” the budget said. “If inflation continues longer than expected or if the Federal Reserve’s policy causes significant disruption to businesses or individuals, the economy may experience a slight downturn.
“This would lead to a sharp drop in income and inefficient consumption, which would lead to a slowdown in the economy and a decline in non-agricultural employment and economic growth.”
“The biggest risk to the economy is continued inflation,” an analysis by the Public Policy Institute of California argues. “Although consumer confidence in December was the sixth straight month of inflation, prices have not yet fallen enough. Until that happens, the Federal Reserve will continue to act to ease the economy, increasing the risk of a recession.”
Fears of a recession and other factors are already weighing on the budget, turning what Newsom and lawmakers thought would be a roughly $100 billion increase last summer into a multibillion-dollar deficit due to a sharp drop in expected revenue, especially taxes from the big budget. . Californians.
The most powerful engine of California’s economy, and hence the state’s revenue, is the Bay Area’s technology industry, whose largest companies are cutting wages due to layoffs after the pandemic has forced them to work from home. .
Despite the cuts, the region still added jobs in December — 84% of California’s job gains in the month, which underscores the economic mix the state is facing.
“We don’t see anything dangerous happening with technology,” said Patrick Kallerman, vice president of research with the Bay Area Council Economic Institute. “I don’t see the tech industry collapsing.”
As economists debate the future of the economy and politicians in the Capitol grapple with how to deal with the prospect, their constituents are getting worse.
A November survey by the Public Policy Institute of California found that 69% of Californians surveyed expect bad times in the next year and 62% expect a period of high unemployment in the next five years.
Dan Walters is a CalMatters columnist.
