California Index Declined Sharply in October
The Comerica California Economic Activity Index declined 4.9% annualized in the three months through October. The Index has turned lower after robust increases in the first half of the year, but was still up 5.7% from a year-ago in October.
Four of the nine components that constitute the Index rose in October. Employment rose by 59,800, but continuing claims for unemployment insurance rose, too, for the fourth consecutive month, after falling in the first half of the year. California’s unemployment rate, which fell nearly 2 percentage points in the first seven months of the year, rose in October. The unemployment rate is likely to rise further in the coming months, as key sectors like tech face strong headwinds. Electricity consumption by California’s industrial sector declined another 0.9% in October after falling 3.0% in the third quarter.
Housing starts fell 13.0% in October. House prices fell for the fifth consecutive month and were down 7.2% from May. Housing affordability is a longstanding problem in California and has gotten worse as first home prices and then interest rates surged post-pandemic. Declines in house prices and weak residential investment are likely in 2023. The travel industry lost momentum as it entered the fourth quarter. The seasonally-adjusted hotel occupancy rate fell 2.4 percentage points in October following a 3.6 percentage point decline in the third quarter. Seasonally adjusted air passenger traffic was down 7.1% in October after an 8.7% contraction in the third quarter.
California’s economy is expected to soften in the coming months, as it faces several headwinds from a weakening housing sector, high interest rates and inflation, and slowing consumer spending. On top of these issues that weigh on state economies across the U.S., the tech slowdown is an additional negative for the Golden State.
