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GDP: Growth Slower but Steady
Both the state and national economies performed better than expected during the first half of 2016, although the pace of growth was slower than last year. California’s economic output expanded by an annualized rate of 2.2% in 2016’s second quarter, nearly twice the U.S. rate.
Gross state product in the second quarter was $2.26 trillion, up from $2.22 trillion a year earlier. If California were a nation, it would be the world’s sixth-largest economy.
Employment: Gains Drive Down Jobless Rate, Growth Moves Inland
California added 378,000 jobs in the 12 months that ended August 31, 2016, a year-over-year (YoY) growth rate of 2.3%. The labor force surged by 1.4% over the same period, with 269,600 people entering or rejoining the workforce, attracted by California’s strong job market. Even with strong labor force growth, job gains exceeded those numbers, driving unemployment down to 5.5% in August 2016 from 6.0% one year earlier.
The health care, leisure and hospitality, and professional-scientific-technical sectors comprised nearly half of job gains statewide. More than three in five new jobs created in the leisure and hospitality sector were in entertainment, including Hollywood, theme parks and sporting venues, a sign that disposable income is growing and Californians have more cash to spend on recreation.
Geographically, growth is moving inland, improving life in areas that had been hardest hit by the economic downturn that began in 2008. That economic slowdown officially ended in mid-2009, but it had lingering effects in many parts of inland California.
Hiring has been particularly feverish in cities such as Madera (up 7.9% YoY), El Centro (up 4.8% YoY) and Chico (up 4.6% YoY), where employment increased at rates more than twice that of California as a whole.
At the same time, the state’s hot jobs markets are not cooling off, with a number of major metropolitan areas continuing to grow at levels that exceed the state as a whole – for instance, San Jose (up 3.3% YoY), Oakland (up 2.5% YoY) and San Francisco (up 2.4% YoY).
Due to increasing wages and employment, 31% of California households can afford the median-priced, single-family home as of the second quarter 2016. That’s up from 30% last year.
But the housing sector remains little changed. Annual home sales (through August) slipped by a marginal 0.5%, a reflection of increasing values and tight inventories. The median price of a single-family home hit $526,580 in August, a 5.8% increase from August 2015.
Looking ahead, expect employment and wage growth to continue, with the jobless rate extending its fall over the next several months – but at a more moderate pace as full employment begins to come into view.
Trade: LA-Area Ports Could See Best Year Since Recession
The two Los Angeles-area ports (Los Angeles and Long Beach) are on track to surpass last year’s count, making 2016 their biggest year in nearly a decade. They are projected to handle more than 15.4 million containers this year.
Activity at the ports year to date is up 0.9% from this time last year, reflecting 2.7% growth in outbound containers and 0.2% growth in inbound containers.
A surge in inbound activity ahead of the upcoming holiday retail season could push annual container volumes over the 2015 level.
This is a strong prospect. The National Retail Federation is projecting a 3.6% increase in holiday retail sales this year. Major retailers are planning to take on a larger number of seasonal workers at distribution and fulfillment centers. Companies focused on shipping and delivery (UPS and FedEx, for instance) are anticipating the busiest holiday season in history.
Nevertheless, there are clouds on the horizon. September’s Hanjin bankruptcy will test the ability of other major shippers to absorb the market share vacated by the Korean line. In addition, the World Trade Organization recently downgraded its forecast for global trade growth in 2017, citing growing antitrade rhetoric, changes in monetary policy in developed countries and the Brexit vote as factors that could negatively impact the future of global trade.
International trade plays a major role in the California economy, with the logistics industry becoming more important in recent years:
- In 2015, 1 in 13 California jobs were related to global trade, a rate that has stayed steady since 2001, when China was admitted to the World Trade Organization and California’s trade volume expanded significantly.
- The state accounted for 18% of U.S. exports last year, more than its 14% share of the nation’s GDP.
- The logistics industry accounted for $171.6 billion of the state’s gross product in the third quarter, or 7.8% of the $2.26 trillion California economy, a 3.9% increase from 2014 to 2015.
Interestingly, the net value of exported services is increasing nationwide. Travel (+6.9% YoY) and telecommunications-computers-information (+2.4% YoY) were among the big gainers. Both industries have stronger presences in California than in the nation as a whole, making the state a hotbed for service exports – a category that is growing in importance but often overlooked in discussions of trade.
*Twenty-Foot Equivalent Unit is a unit of measure for a ship’s cargo carrying capacity. One TEU is equal to a standard 20 foot shipping container.