Report shows California catching up to U.S.
Economy here narrowing the gap
Growth is even higher than previous estimates
The California economy continues its strong economic performance, with the state’s unemployment continuing to decline, so that the gap between the state’s unemployment rate and the national rate is much smaller, according to a recent report by the California Chamber of Commerce’s Economic Advisory Council at its recent meeting.
Following is what the Council reported regarding the state’s economy:
The growth of the United States economy slowed to 2.2 percent during the second quarter of 1997, with generally declining unemployment rates and modest price increases.
A sign of the growing attractiveness of California and its economy is that recent data indicate that more people are moving into California from other states than are moving out of the state. California’s industries continue to grow, with the recovery helping all parts of the state.
he federal government’s final estimates show that the United States economy grew at a very strong annual rate of 5.9 percent during the first quarter of 1997. This is even higher than the earlier estimate of 5.6 percent reported at the last Council meeting.
The first estimates for the second quarter of 1997 indicate that the growth rate slowed to an annual rate of 2.2 percent.
This slowdown was anticipated based upon early indications of economic activity reported during the quarter. Even with the slowdown in the second quarter, the general consensus of U.S. economists is that the economy will grow at over a 3 percent rate for the entire year of 1997.
The nation’s unemployment rate has continued its general decline. The April, May and June unemployment rates were 4.9 percent, 4.8 percent, and 5 percent, respectively. Despite the tight labor markets, wage and benefit increases have been moderate, with these costs up only 2.8 percent since last year.
In the meantime, inflation rates continue to run at a low rate of 2.2 percent on a year-to-year basis. Since the last Board meeting, the Federal Reserve has maintained current interest rates.
In a pattern consistent with our recent reports, the California economy continues to grow. The state’s job growth rate is running at about a 3 percent annual rate, which is the 7th fastest growth rate in the nation. The state is adding jobs at a rate that will create about 370,000 jobs during the year, which is the most of any state in the country. At the same time, the unemployment rate declined to 6.2 percent in June. The gap between the state’s and the nation’s unemployment rates continues to narrow.
The decline in the unemployment rate is not the only measure of California’s improved competitive position with the rest of the nation. For many years before the recession of the early 1990’s, California experienced a net in-migration of people moving here from other states.
During the early part of this decade, as the state’s economy weakened, California actually had a net out-migration of California residents moving to other states. Now that pattern has reversed and California again has net in-migration from other states. Recent studies of new driver’s license applications indicate that California had a net increase of 115,000 people moving here from other states.
California’s telecommunications industry continues to respond to strong demand for communications services. The wireless communications market is broadening very rapidly. New products, such as digital communications, are being accepted by the public and expanding the communications market. Demand for second lines to residences seems to be driven by increased Internet activity.
The entertainment industry in Southern California continues to grow, with the industry expected to add about 22,000 jobs this year. However, this is a slowdown from the very rapid growth experienced in 1995. The industry is going through some restructuring and merging of businesses. Nevertheless, the industry is still looking for new sound stages to keep up with demand.
Sales of existing homes in California are at their highest level since 1989. As the market has been recovering, the unsold inventory of homes also has declined to its lowest level since 1989.
The current accommodative money policy on the federal level and the strong California economy have been supporting the recovery of this sector of the housing market. The return of in-migration to California should provide additional support for the demand for existing homes. The increased in-migration may also help the new housing market, which continues to build homes at a low rate of about 100,000 to 105,000 units per year.
California remains the leading state for the movement of international trade. Through May of this year, the state had moved 23 percent of all merchandise goods traded between the United States and the rest of the world.
The value of trade through California has increased 4.1 percent since last year, with imports growing slightly faster than exports. The value of trade through the Los Angeles Customs District is up 8.1 percent, while trade in the San Francisco Customs District is down, due to a decline in the value of waterborne trade through that customs district. In terms of containerized cargo movements, the Port of Long Beach is up 13 percent for the first half of the year and the Port of Los Angeles is up 18 percent.
Tourism remains a major industry for California and is continuing to grow, but not at the same pace as earlier. The pace of growth seems to have slowed, due to a decline in foreign visitors. There are several possible reasons, including the high value of the dollar, flood damage to popular rural destinations, such as Yosemite, and the fact that there were no new major attractions at the state’s amusement parks this year. In addition, there is strong competition from other states to capture tourist spending.
The bright spots for tourism are in the state’s urban areas. The convention business is strong. The Silicon Valley and the San Francisco Bay area remain popular. Even the Southern California area is doing well, with hotel vacancy rates in Los Angeles rising to 73 percent.
Overall, the state’s economy is doing well. The California economic recovery continues and is starting to reflect that strength by the increase of net in-migration to the state. The state still faces the challenge of increasing new housing starts. Another possible challenge is to cope with the implications of the high value of the dollar and its implications for the competitiveness of California’s industries. The state also needs to respond to the challenge of competition from other states for tourist spending.