Is California Experiencing a Recession?


While proposing the budget to the Legislature in May, Gov. Jerry Brown warned that a recession is imminent in California. Brown was concerned about the economic prospect of the national government whose adverse impacts would trickle down to California. The United State’s economy has been booming for the last eight years, two years short of the expansion witnessed after World War II which was also the longest boom before a recession. After eight years of prosperity, Brown envisions a downturn.
Dan Walters, a columnist at Calmatters, agrees with Gov. Brown in his recent article. In fact, he believes that the downturn that Brown talked about in May is already biting. Walters leveraged an analysis by the federal Bureau of Economic Analysis (BEA) to substantiate his opinion. BEA publishes economic performance of all the states quarterly.
Recent data released by BEA indicates that the Golden State’s economic performance this year was way below the performance last year. In 2016, California registered a 3.3 percent in economic output, two times that of the nation and the highest of the 50 states. However, California recorded a gain of 0.6 percent and 2.1 percent in the first and the second quarters of 2017 respectively. The combined growth is not only below the national economic increase but also put California at number 35 among the states.
According to BEA, all the major sectors that drive the Golden State’s economy witnessed a slow-down in the second half of 2017. The manufacturing sector registered the most wanting performance while tech sector, as expected, remained resilient. Walters interprets the Silicon Valley’s contribution to the California’s economy as a confirmation of the narrative that was it not for the tech industry, California’s economy would be lackluster.
Walters remains open-minded that whatever California is currently undergoing maybe not be the recession that Gov. Brown anticipated, but which would be the most hit sectors were a recession to occur? The first victim would be the state budget, Walters noted. The state budget would be hit worse than in the past recessions partly because it is highly dependent on a handful of high-income Californians and the tech industry. Also, unemployment would increase markedly. Other sectors of the economy such as the construction industry, retail sales, housing, etc. would all be adversely affected.
With a recession already taking shape or on its way coming, debates whether the Golden State is overregulated, overtaxed, etc. are likely to accompany a depression.