There’s a growing consensus that the United States economy is moving in a positive direction.
For example, economic growth exceeded expectations in the second quarter. However, when it comes to California’s economy, opinions are variable. A recent poll by the Public Policy Institute of California (PPIC) reveals the mixed feelings that California residents have about the economy. A majority (53%) of adults said their financial situation is about the same as it was a year ago. One-third, meanwhile, believe they are worse off while only 14% say they are better off. A significant majority of Californians are pessimistic about the future, with 76% expecting bad economic times in the US within the next year.
The Federal Reserve has prioritized managing inflation over the last few years. As a result, they’ve raised interest rates to their highest level in 22 years, making it more expensive for consumers to borrow money for both personal and business needs. While helping to control inflation, this can result in a slowdown as spending decreases.
California’s Economy: Pessimism in California and the Nation
Why are so many Californians pessimistic? One point to take note of is that people’s feelings about the economy are not always based on the current reality. The pandemic, for example, caused a slowdown in many sectors and contributed to pessimism about the future. In light of this, even positive data about the nation’s whole economy has not yet created an optimistic mindset. A poll conducted by the Suffolk University Sawyer Business School showed that 74% of Americans think the economy is getting worse even as inflation is slowing.
Christopher Rupkey, chief economist at FWDBONDS in New York, told Reuters that a reason for lower consumer confidence is that prices are currently higher than before the pandemic. When it comes to the economy, either at national or local levels, it’s necessary to recognize that people’s perceptions don’t always coincide with hard statistics. The latest verified unemployment rate for California was 4.6% in August. By comparison, unemployment was 9.1% in December 2020 as the Covid pandemic began. Still, other states currently enjoy much lower unemployment rates, with Maryland, New Hampshire, Vermont, South Dakota, and North Dakota all at 2%.
UCLA Forecast: No Recession is Expected
The UCLA Anderson Forecast report found that the nation has most likely avoided a recession, though it does predict a “weak” 2024 outlook. The report also says that California’s economy is outpacing the nation. Measuring the period ending in August 2023, employment gains in California were particularly notable in the healthcare, social services, and education sectors. Several other industries also displayed high employment numbers, including construction, durable goods manufacturing, and hospitality.
Prior UCLA reports outlined two potential scenarios for the state’s economic outlook. One possibility was a recession due to the aggressive efforts of the Federal Reserve to lower inflation. The other scenario was an economic slowdown without a recession. The latest report found that the latter scenario is more likely.
California’s Economy: Housing Market Forecast
Another positive note in the UCLA Anderson Forecast is about the housing market. The report expects a continued recovery in the housing market, including consistent new homebuilding and a demand for housing. Real estate represents a large portion of California’s GDP. According to Statista, finance, insurance, real estate, and leasing (grouped together in this metric) were $477 billion in 2022, second only to professional and business services. 2023 has been a fairly unstable year for housing throughout the country.
In September, the California Association of Realtors (C.A.R.) released its 2024 Housing Market Forecast. Their predictions were guardedly optimistic, including the following.
- Housing affordability (the percentage of households able to afford a home at the median price) will remain flat at 17%.
- The median home price will reach $860,300, a rise of 6.2%.
- Sale of existing single-family homes will increase to 327,100 units, a rise of 22.3% from 2023.
- Slower growth and declining inflation will reduce mortgage interest rates and help stimulate home sales in California.
These housing market forecasts are another reason to be cautiously optimistic about the overall strength of California’s economy in the coming years.
California: A Major Player in the Energy Sector
The 2023 California Economic Summit gave experts and leaders a chance to focus on some encouraging signs for the future. Eleni Kounalakis, Lieutenant Governor of California, and Steven Cheung of LAEDC (Los Angeles County Economic Development Corporation) discussed some of California’s leading opportunities in the coming years. Among the most promising is the state’s important role in the energy sector.
One of the primary areas of focus at the summit was California’s energy industry. As the country’s largest consumer of oil and the seventh-largest producer of oil, the state has a vested interest in energy production. At the same time, energy conservation is a goal, with carbon neutrality by 2045 as a goal. Imperial Valley, the region of Southern California known for its production of lithium (which is why it’s also known as Lithium Valley), was identified as one of the biggest opportunities for future growth.
Commercial Bank of California Is Ready for the Future
Robust financial institutions are essential for a strong economy. The Commercial Bank of California has enjoyed steady growth in the first half of 2023, with a net income of $10.1 million for the first nine months of 2023. Although we remain optimistic about California and the entire nation, we are committed to serving our clients in any economic climate. In our 20 years of operation, we’ve seen all kinds of conditions, and our stability and flexibility allow us to withstand downturns.
Our optimism is supported by a general improvement in the banking industry’s condition over the last year. As Ash Patel, President and Chief Executive Officer shares, after a shaky start to the year, bank failures seem less likely going forward. We recognize that California, along with the rest of the nation, has its share of challenges. However, we also have faith that the people and institutions of this state are resilient and forward-thinking enough to push forward and create a better future. We intend to do our part to help manifest this vision.