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California Economy Buffeted by External Forces

August 22, 2016
By Daniel Sanabria

The California economy headed into the latter half of 2016 with some momentum, after weathering a volatile start to the year. Even as tech-stocks lost value early in the year, California real GDP still grew at 2.0 percent in the first quarter, almost twice that of the U.S. average of 0.8 percent. Since then, tech-stocks saw a stronger than expected spring and summer rebound as global financial market conditions improved. Domestically, U.S. consumers shopped with a vengeance this spring as personal consumption of goods and services increased at a 4.2 percent annual rate in the second quarter. This is a bullish signal for the U.S. economy and it supports the outlook for tech-based industries for the remainder of the year. Internationally, central bank policies are divergent. The Bank of Japan and the Bank of England continue to pursue easing policies, making the Federal Reserve’s current monetary stance look relatively stronger, supporting the dollar even as the Fed does nothing. The broad dollar index strengthened after the June 23 BREXIT vote, to the detriment of export-oriented businesses. The dollar value of California exports has declined for 18 of the last 20 months. Lower oil prices have had some impact on this trend. We expect the state economy to weather the international crosswinds through the remainder of this year, growing moderately and adding enough jobs to keep the unemployment rate on a declining trend. The previously hot Northern California real estate market will cool as the manic pace of home buying eases due to declining affordability.

CA Outlook 082016

For a PDF version of the complete California Economic Outlook, click here: CA Outlook 082016.