in summary
With personal income growth stagnating and prices still rising, the California economy is lagging many national trends that are going the other way.
Late last month, the Federal Reserve announced the latest incremental hikes in its benchmark interest rate, pushing it to its highest level in 22 years as it continues to fight what it calls persistent inflation.
The quarterly rise of 1% sparked renewed debate among economists and politicians over whether the Federal Reserve’s anti-inflation measures will slow the economy into a so-called “soft landing” or trigger a recession.
The recession that many economists thought had arrived by now has not reared its ugly face, prompting “I told you so” from those who didn’t see a slowdown on the horizon.
“Much to the chagrin of those who predicted otherwise, the US economy has stubbornly continued to grow and 2023 looks set to be a better year than 2022,” wrote one of the optimists, California economist Christopher Thornberg, recently.
“That’s not to say we aren’t seeing signs of stress in the economy, caused by higher interest rates and the recent surge in inflation,” Thornberg continued. “Rather, we never classified these problems as systemic because they were caused by the same reason that drove consumer spending higher – the excessive stimulus during the pandemic.”
“The biggest risk, as we have seen, has always been inappropriate tightening by the Federal Reserve in response to its original sin of excessive easing.”
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However, there are two sides of the economic coin – one is shaped by the numbers economists love, and the other is shaped by the admittedly unscientific concerns of citizens.
A recent poll by the Public Policy Institute of California found that Californians overwhelmingly believe bad economic times are ahead, based in part on experiences with inflation in housing, food, fuel and other living expenses.
These sour expectations can be more than just emotions. While the nation as a whole appears to be doing reasonably well, as President Joe Biden reminds us almost daily in anticipation of next year’s re-election campaign, California’s economy is faring only so-so.
California’s unemployment rate was 4.6% in June, which doesn’t sound bad — certainly a lot lower than when the state’s economy was shutting down during the COVID-19 pandemic and the unemployment rate surged above 16%.
It was higher than a year earlier, however, and — quite soberingly — it was the second highest of any state at 5.4% in Nevada and more than double the state’s lowest rate of 1.8% in New Hampshire.
California’s other economic indices are similarly weak.
The Federal Bureau of Economic Analysis reported in June that California’s gross domestic product — the total of goods and services — was one of the slowest growing in the country at 1.2% in the first quarter, about a third of the growth of rival state Texas (Q3). ). %) and Florida (3.5%). Other states in North Dakota were at an equally high 12.4%.
The BEA’s quarterly report on personal income growth was similarly mediocre. Statewide, it grew 5.1%, but in California it was barely a 0.7% increase, almost bottoming out. Texas recorded personal income growth of 6.7% and Florida 7.9%.
The feeble growth of personal income has real implications when it comes to dealing with the inflation that still plagues California families, and it’s also one of the main reasons the state is struggling with falling income taxes and the resulting budget deficits of several billion dollars.
Legislative budget analyst Gabe Petek called the economic outlook “particularly bleak” and believes the state is facing larger budget deficits than Gov. Gavin Newsom and lawmakers projected in their new budget.
It’s just as muddy for the family budgets of nearly 40 million Californians.
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