Navigating California Growth into 2017

After a rocky start to 2016, the California economy has picked up momentum in the second half of the year. Stronger job prospects have drawn people into the state labor force at levels not seen in over a decade. California has pulled in an additional 379,000 potential workers into the state labor force in the 12 months ending in September, the strongest pace since January 2001. The improving California labor market has supported our expectations of moderate state economic growth this year. We expect California real gross domestic product to grow by 2.5 percent in 2016, outpacing our forecasted U.S. average growth of 1.6 percent.

While we expect California’s economy to continue to outpace the U.S. average in 2017, there are a number of uncertainties to our outlook over the next few years. At the local level, we are already seeing moderating year-over-year employment growth, off of 2015 highs, across the California major metropolitan areas. This is to be expected as the economic cycle matures. A tighter labor market can both limit the pool of job applicants and increase labor costs through upward pressure on wages, slowing down the pace of hiring. At the national and international level, the strong rhetoric on trade policy throughout the 2016 presidential election increases the uncertainty for industries tied to California imports and exports. Mexico, Canada, China and Japan are the top four markets for California exports, respectively. Therefore a shift in trade policy for NAFTA or future trade with China and the resolution to Trans-Pacific-Partnership could have a material impact on California regional economies.

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For a PDF version of the complete California Economic Outlook, click here: CA Outlook 112016.

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