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
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