May 2019 CA Economic Outlook

May 13, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

California Cooling

Economic data released for the first quarter is consistent with a moderate expansion for the California economy at the start of the year. California GDP has grown at or above 3 percent since 2013. However, there are signs that some of the major economic drivers are cooling. The state added 51,300 jobs in Q1. This is about half the job gains seen in 2018Q1, and the slowest start to the year since 2016. While we expect job growth to pickup in Q2, the overall trend in the pace of hiring will be slightly weaker in 2019 than in 2018. California has also seen a slowdown in the residential housing sector. Both single-family and multifamily housing starts have been on a downward trend since early 2018. In the near-term lower mortgage rates may be able to help stabilize new home construction this year. However, the longer run trends of low affordability and net outflow of people from the state are more difficult to overcome. Home prices across the state’s major metropolitan areas are increasing at the slowest rates since turning positive in 2012. The year-over-year change in the Case Shiller Home Price Index for Los Angeles was up 1.8 percent, San Francisco was up 1.3 percent and San Diego was up 1.0 percent in February. Ongoing trade tension between the U.S and China is a major risk factor for the California’s trade sector. Combined imports for the Ports of Long Beach and Los Angeles were up just 0.8 percent while exports were down by 8.9 percent from a year ago in April. The Trump Administration implemented additional tariffs on $200 billion worth of Chinese goods on May 10 and the Chinese government has threatened retaliatory tariffs in response.

For a PDF version of this report, click here: May 2019 CA Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

Read More

February 2019 CA Economic Outlook

February 11, 2019 by Robert A. Dye, Ph.D., Daniel Sanabria

California’s Economy to Cool in 2019

We expect the California economy to continue to expand in the near term. That said, downside risks to California’s economy have increased and the list of possible accelerators for the California economy has diminished. One item that remains on the plus side for California would be a resolution to the U.S./China trade war which would boost demand for California exports plus bolster overall shipping volumes through California ports. Job growth for the state is moderating. California added 284,300 jobs in 2018, the slowest pace of job growth since 2011. We expect the state to add about 276,000 jobs over the year ending in 2019Q4. Meanwhile, the state’s unemployment rate is near a historical low at 4.2 percent in December, and is expected to decline through 2019. With labor markets this tight, it is hard to see where more workers would come from. The most recent data from the Census Bureau is indicating that California is experiencing a net outflow of people even with a historically tight labor market. Low housing affordability and high business costs are persistent motivators for out-migration. Recent declines in mortgage rates and moderating house price growth across California’s major metropolitan areas will help affordability in the short term, but will not be enough to alter the state’s high cost of living. The rate of house price appreciation has moderated significantly in the second half of 2018 in California’s key cities. According to the Case-Shiller data, San Francisco house prices were up 11.1 percent in March 2018, over the previous year. In November the yearly gain had decreased to 5.6 percent.

For a PDF version of this report, click here: February 2019 CA Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

Read More

November 2018 CA Economic Outlook

November 9, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

Risk Factors Increase for California’s Economic Outlook

The California economy lost some momentum in 2018 and we expect to see a cooler state economy in 2019. As the current economic cycle matures, downside risk factors are increasing for California. October saw steep declines in major U.S. stock indices as volatility in financial markets spiked. Leading the way down were heavy losses in major technology stocks. The Dow Jones Technology Index was down 15.3 percent from peak to trough in October. Companies continue to benefit from corporate tax cuts, however rising operating and borrowing costs may squeeze corporate profits in 2019. California housing markets cooled in late 2018. According to the California Association of Realtors, single-family home sales were down 12.4 percent from a year ago in September. The supply of unsold single-family homes increased to 4.2 months worth in September. We expect to see weaker demand for housing in 2019, primarily due to declining affordability. This will translate into cooler house price appreciation going forward. The Case-Shiller Home Price Index for San Diego posted two consecutive monthly declines in July and August. Lastly, the trade outlook remains mixed. The new U.S.-Mexico-Canada Agreement, which still needs to be ratified by each country, is a positive for state trade activity. However, trade tensions with China ramped up in the third quarter as the U.S. implemented additional tariffs. The results of the recent mid-term election do not appear to impact either the USMCA or U.S.-China trade negotiations. President Trump is expected to meet with China General Secretary Xi Jinping later in November.

For a PDF version of this report, click here: November 2018 CA Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

Read More

August 2018 CA Economic Outlook

August 13, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

California Economy Feels Cooler in 2018

    California was a growth leader for the U.S. economy coming out of the Great Recession. As the economic cycle matures, the state is running into some limits to growth. Strong job growth, supported by a vibrant high-tech sector has been a mainstay for the California economy. However, the state averaged a net of just 14,850 jobs gained per month through the first half of 2018, the slowest pace of hiring since 2011. With the state’s unemployment rate at a historical low of 4.2 percent in June, it will be difficult to re-accelerate the pace of hiring to that seen in recent years for two reasons. First, the pool of unemployed job candidates is small. Second, transferring an existing worker to a new job within the state would not result in a net job gain. California’s housing sector has also moderated in recent months. According to the California Association of Realtors, existing single-family home sales were 410,800 in June, down 7.3 percent from a year earlier. The supply of single-family homes for sale was at a tight 3.0 months’ worth. Declining affordability, due to rising mortgage rates and home prices, will also be a limiting factor on new home sales. With constraints on single-family housing, we expect multifamily projects to remain in demand. Trade data has also weakened. California’s exports and imports declined 7.0 and 5.2 percent, respectively, in June. Trade-related industries will feel the drag from tensions with China, California’s most important trading partner. The U.S. imposed a 25 percent tariff on $34 billion worth of goods from China on July 6 and will expand that to an additional $16 billion on August 23, with further expansion possible.

For a PDF version of this article, please click here: August 2018 CA Economic Outlook

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

Read More

California Weathers Increased Volatility | May 2018

May 14, 2018 by Robert A. Dye, Ph.D., Daniel Sanabria

The California economy posted another year of solid growth in 2017. California real gross domestic product was up 3.0 percent last year supported by solid job growth and sustained gains in the state’s key technology sector. That momentum has slowed a bit and there are signs of increased volatility in the early part of 2018. After a strong January job gain of 48,900 jobs, California job gains were muted in February and turned negative in March. This was the first monthly net job loss in the state since June 2016. Tech sector financials have also been volatile this year as the Dow Jones Technology Stock Index has seen two cycles of 10 percent declines from peak to trough in daily closing prices, followed by periods of above 10 percent rebound in prices. From an economic perspective, this becomes an issue if the uncertainty in financial markets begins to impact business confidence and investment. We expect California job growth to stabilize in the coming months and be a driver of economic activity this year, but we expect volatility in the major financial indices to remain in the near-term.

The state’s housing sector continued to improve through the start of 2018, supported by more single-family construction. Permits for new single-family units were up to a 62,000 unit annual rate, or 16.5 percent from a year ago in March, according to the California Department of Finance. This is a positive development for the state’s tight housing market which is seeing home prices climb again. The Case-Shiller Home Price Index was up 8.2 percent in L.A., 10 percent in San Francisco and 7.6 percent in San Diego from a year ago in February.

For a PDF version of this report click here: CA-Outlook-0518.

The articles and opinions in this publication are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

Read More