In the State Capital, Governor Gavin Newsom gave his State of the State speech yesterday boasting about California as an economic powerhouse. While at the same time down south, the Los Angeles County Economic Development Corporation (LAEDC) revealed its annual economic forecast predicting that the rosy picture will likely pale.

In announcing the economic forecast, the LAEDC noted California’s strengths and potential weaknesses: “Unemployment is low, GDP is up, there may be some relief from the trade war. But on the other hand, wage growth is soft, housing costs are now a crisis, and only half the occupations that are hiring pay a living wage.” 

Newsom pointed out that California is the fifth largest economy in the world with 118 consecutive months of net job growth, 3.4 million jobs created since the Great Recession and a five-year average GDP growth of 3.8 percent exceeding the national GDP growth of 2.5 percent. 

The LAEDC report stated that while California did exceed national growth, it is expected to see GDP growth “roughly in line with the national average” moving ahead. The forecast predicted that California’s real GDP growth continues downward from 4.3% in 2018 to 2.6% in 2019 to a predicted 2.0% in 2020 and 1.6% in 2021.

Still, the economic forecast predicted unemployment continuing to drop from 4.1% in 2019 to 3.9% in 2021 with real personal income increasing 2.2% in both 2020 and 2021. 

Yet, signs are also present that California’s fast economic growth will slow. The state ranked in the top five among states with the fastest growth, down slightly from being the fasting growing state as measured by real gross state product. However, in the third quarter of 2019, the Golden State got only a middling ranking of 23rd in terms of quarterly growth.

The economic forecasters focused on California’s problems stemming from a reduction of population growth and the state’s high cost of living and housing.

Newsom spent the bulk of his State of the State speech on the homeless crisis. You can read the speech and the solutions he is offering to confront the homeless crisis here. 

The LAEDC report noted that not only are people choosing to leave California, but the state has become a low fertility state. “While there are any number of reasons why people choose to leave the state, or to put off having children, the dominant story is one of a housing markets so overheated that it is becoming increasingly less practical for those who do not already own a home to buy one.”

The LAEDC predicted housing permits will fall from 107,433 in 2019 to around 92,000 in 2021 reflecting increasing material and labor costs along with regulatory restraints. Failure to produce an adequate housing supply, the report suggested, will raise the median housing price to $600,000.

The state can confront both housing costs and homelessness by taking some bold steps including fully opening up building to all contractors in the state and reducing regulations. Instead, California legislators have been going in the opposite direction. We’ll see if a less rosy economy and the housing crisis will change some attitudes in Sacramento.