California’s economy will see slow growth in 2024, economists say. Here’s why
California’s economy is likely to grow somewhat faster than the rest of the country, but progress could easily be thwarted by wars, politics and stubbornly high interest rates, the new UCLA Anderson School state forecast said Wednesday.
“Even though recession worries have faded, increased military activity abroad and a sense of greater geopolitical risks have kept uncertainty about the future high,” wrote Jerry Nickelsburg, forecast director.
The uncertainties, he said, combined with a U.S. economy expected to grow more slowly, “leads to a slower growing California economy,” he said. He titled his forecast “From Rapid to Anemic Growth: The California Report.”
Most national economists see growth slowing in 2024, citing the same uncertainties around wars in Ukraine and Gaza, the the presidential election what the Federal Reserve will do about interest rates.
The Fed, which is scheduled to meet next week, has raised its key rate to its highest level in 22 years. While no new increases are expected in the short term, the Fed still has not reached its goal of pushing the rate of inflation to 2%. Prices were up 3.2% over the 12 months ending in October.
The UCLA forecast sees price increases nationally slowing to 3.1% next year and 2.8% in 2025. It predicts prices in California will go up 3.2% next year and match the national increase in 2025.
It sees the state’s unemployment rate dropping to 4.5% next year and 3.8% in 2025. The seasonally adjusted October rate was 4.8%, above the comparable national rate of 3.9%. Next year’s national average is forecast to be 3.9%.
Jobs and housing outlook
Even as California and the nation’s economies grow, albeit slowly, the predictions are shaky.
“There is less confidence in California outperforming the U.S. in 2024 than three months ago,” Nickelsburg wrote.
The brighter news is that California has seen strong gains in jobs in health care and social services, public and private education and leisure and hospitality.
The leisure industry was particularly hard hit during the COVID-19 pandemic. But last month, it recovered to the point where it employed more than 2 million people, roughly the same as worked in that industry in February 2020, the month before the public health emergency sent the economy reeling.
The biggest job losses in the last three months have come in the information and professional sectors, which includes print media, Hollywood and telecommunications.
The drop in the information sector, though, is almost all because of the actor and writers’ strikes this year, which have been settled.
Over the next six months, the forecast said “solid growth” in employment is expected.
Another somewhat bright spot is housing. The forecast notes that higher interest rates should mean lower prices, but prices have been climbing more than the rate of inflation.
“Relative to the rest of the nation, California’s new home construction is holding up,” the forecast said.
The forecast noted that the loss of population to other states because of housing affordability should continue, but at a slower pace. Housing costs are going up in states where Californians are heading.
“To be sure, California housing will still bring a premium due to the more extensive amenities affording to residents, but the gap has closed significantly,” the forecast said.
“Many fully remote workers moved to hybrid work and moved back,” it said, and added that the recent domestic migration combined with increased housing supply “either pushed down prices or slowed their rise in cities attracting Californians.”
This story was originally published December 6, 2023 at 5:00 AM with the headline "California’s economy will see slow growth in 2024, economists say. Here’s why."
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