California’s economy is thriving despite looming inflation risk, UCLA reports says

Californians are losing a lot of their buying power this year, as inflation remains a problem and government stimulus aid disappears.

Nevertheless, the state’s economy continues to thrive, and is moving toward surpassing Germany as the world’s fourth-largest economy.

Those are among the key findings of the new UCLA Anderson economic forecast released Wednesday.

“Investors continue to flock to the state in search of superior returns,” the report says, and it finds that though people continue to leave the state, the exodus is being slowed by the “decreasing affordability of the current set of alternative cities.”

The latest forecast is very much a mix of rosy and worrisome predictions.

“California is an important part of the U.S. economy,” it says, “and as national economic growth slows, California will follow along.”

Many other forecasts see the country nearing a recession if not tumbling into one in the near future.

The Federal Reserve is expected to announce another round of interest rate increases Wednesday in an effort to choke off inflation. Prices were up an average 8.3% over the year ending in August, their steepest pace in 40 years.

“There are headwinds that represent real risks to the economy in the near term,” the UCLA economists say. “As a consequence of slowing growth in the U.S. our forecast is now a bit weaker than three months ago.”

Still, the forecast sees a state unemployment rate for the fall quarter at 4%, dropping to 3.5% in the winter.The U.S. unemployment rate in August was 3.7%. California’s was 4.1%.

Jobs and inflation

The report cites “broad-based hiring with leisure and hospitality, health care and social services, technology, and construction posting solid gains. Increases in defense spending and the continued demand for tech will likely keep the California economy growing.”

But as the economy slows, so may employment, and the rate could go up again in mid- 2023. The California rate is predicted to rise to average 4.4% next year and 4.8% in 2024. The national rate is estimated to be 4% next year and 4.1% in 2024.

Reasons for the state’s lag have been a leisure and hospitality sector that has been slow to return to pre-Covid pandemic levels, due in part to less tourism. Another factor has been workers who often do not return to low-wage jobs they left during the pandemic..

The forecast says the coming slowdown is anticipated to reduce state residents’ after-inflation income levels. Adjusted for inflation, personal income in the state is predicted to drop 5.5% this year.

That not only reflects the impact of price increases — an estimated 7.8% in California this year — but the end of key federal stimulus programs that helped boost incomes during the pandemic.

The study predicted “real” income would grow 0.3% next year and 2.4% in 2024.

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