Russell Goldsmith
Russell Goldsmith, Chairman and CEO, City National

The slowing GDP growth rate in the U.S. and California in the last part of 2014 was a statistical head fake.

A better indicator of what is to come in the year ahead is growth in Gross Domestic Demand—and that surged, with growth accelerating in consumer and business spending. Add in the strengthening labor market and it’s clear the economy has finally turned the corner.

Moreover, growth rates in the Los Angeles economy, which have been lagging the state, can be deceiving. In absolute dollar terms of GDP, the L.A. region has been growing more than any other part of California, and key industries such as movie production and professional services are booming.

Dr. Christopher Thornberg
Founding Partner, Beacon Economics


  • Good GDP: The California economy ended the year on a strong note as annual growth for 2014 came in at an estimated 2.9% over real output levels the prior year. This was an acceleration over the 2.0% increase last year and marked the highest rate of growth since 2006.
  • More New CA Jobs: The pace of job creation in the state rose to a 3.2% annual rate in the fourth quarter, on par with the previous quarter. A mix of both high- and low-wage jobs drove the increase.
  • We Love It!: The Los Angeles economy remains the heavyweight in the state and packs the largest, if not the fastest, punch. Home to more than a quarter of the state’s population and labor force, Los Angeles County sways the direction of the state’s economy, and the current outlook is quite positive.


“Nationwide employment and GDP levels increased measurably in 2014 along with other positive economic indicators. California’s economy grew at an even greater pace, thanks to increased consumer spending, rising business investment and its own strengthening job market. The state gained additional momentum in the fourth quarter of the year, setting the stage for good growth in 2015.”
Russell Goldsmith, Chairman and CEO, City National

CALIFORNIA: Late Gains Lead to Accelerated Annual Growth

After starting the year off on a weak note, the Golden State economy maintained upward momentum through the fourth quarter to push annual growth higher than the previous year. Real gross state product in California totaled $2.142 trillion in the fourth quarter according to the latest estimate by Beacon Economics, a 3.6% annualized increase over the prior quarter.

This is down from the 5.2% growth in the third quarter, but nevertheless is higher than the Bureau of Economic Analysis’ estimated 2.2% growth for national gross domestic product. On an annual basis, Beacon Economics estimates the California economy grew by 2.9% in 2014, up from the 2.0% annual growth in 2013. This was also the highest increase in real output since 2006 when the state economy grew by 3.1%.

Growth in real gross state product during the fourth quarter was broad based as all major sectors posted gains over the prior quarter. The bulk of the increase was due to continued strength in the professional and business services industry which contributed 1.25 percentage points to fourth quarter growth.

We have seen strong demand for professional and business services in the state, which has helped to fuel both output and employment growth for this industry. During the fourth quarter the number of professional and business services jobs increased at a 5.8% annualized rate, up from 4.4% the prior quarter. This industry’s strong growth in California is one of the reasons gross state output is growing faster than the nation, since U.S. professional and business services employment in the fourth quarter grew by 3.9% in comparison.

The information industry made the second-largest contribution to gross state product growth in the fourth quarter. Output in this industry has been boosted by intellectual property investments in categories such as software as well as entertainment, literary, and artistic originals.

CALIFORNIA LABOR MARKETS: Employment Grows to Finish the Year Strong

Employment growth in California remained strong in the fourth quarter. Nonfarm employment in the state increased by 122,367 jobs, the fastest pace of job creation in more than a year.

The professional and business services industry continued to drive nonfarm job growth in the fourth quarter adding 37,700 new jobs to company payrolls. Of these jobs, 23,733 were from the professional, scientific and technical services sector, which tends toward higher-paying jobs. This bolsters the view that job creation in the state is not being driven primarily by low-wage jobs but rather a mix that spans the wage spectrum.

Leisure and hospitality was also a solid contributor to job growth during the fourth quarter and added 15,033 payroll positions. Steady increases in travel and tourism activity throughout the state have fueled healthy growth for this industry. As of November 2014, passenger traffic at LAX and SFO was up by 6.5% and 4.9% respectively over the same month a year prior.

The latest job gains have pushed California’s unemployment rate down to 7.2%. This drop came about as the labor force expanded at a 1.4% annual rate, indicating that new residents are entering the labor force and are able to find jobs.

The number of distressed workers in the state has also declined steadily, which points to a reduction in labor market slack for the state and is a strong indication of healthy job growth trends. The number of long-term unemployed, discouraged workers, and those working part-time for economic reasons all declined.


Los Angeles County is by far the largest regional economy in the state, and while it does not always post the fastest growth rates, it certainly packs the largest punch. With a population of more than 10 million, Los Angeles County makes up more than 25% of the state’s population. From 2013 to 2014 the area’s population grew by just 0.6%, nearly half of the 1.1% growth seen in nearby Orange and San Diego counties. Nevertheless, the number of new residents in Los Angeles County far surpassed the other Southern California counties.

The Los Angeles County labor market similarly grows slower than other parts of the state. In December 2014 nonfarm employment increased by 1.9% over December 2013, lagging behind Orange County (2.3%), San Diego County (3.3%), as well as the Inland Empire (1.9%). In terms of the number of jobs, however, Los Angeles County was far ahead as payrolls swelled by 81,700 and represented 17.3% of the net job gains across the state.

Due to its considerable weight, what happens in Los Angeles County has a large impact on the direction of the state’s economy, and lately things have definitely been on the right track. The real estate market in Los Angeles County has held steady as of late as solid fundamentals have begun to drive activity in the market. Home sales have been slow to pick up, but mostly due to a shortage of homes available as the number of distressed properties in the market has dwindled from post-recession highs. Home price appreciation has slowed to the 7% range as of the fourth quarter, but this is more in line with historical trends.


“Our commercial landscape business has grown significantly over the last 24 months, and we have hired more than 200 people as many of the nation’s largest homebuilders and developers turn to Gothic Landscape for their grounds management solutions.”

Jon Georgio, President, Gothic Landscape


It is important to take stock of the recent performance to assess where we are headed from here. In 2014 the U.S. economy grew by 2.4%, a slight acceleration over the 2.0% growth in 2013. By our estimates the California economy grew by 2.9% in 2014, also an improvement over the 2012 to 2013 growth. Looking ahead to 2015, we expect both the California and national economies to grow at a faster clip than in 2014.

The employment gains over the last year will help fuel economic growth in 2015 as consumer spending makes up a large portion of economic growth in the state. Wage growth also improved in 2014, which will further bolster spending in the coming year. The average weekly wage last year increased by 1.6% over the prior year, up from the 1.2% growth from 2012 to 2013. Another boost to consumer spending will come from lower gas prices. This is especially true for California which does not rely as heavily on oil production as other parts of the country, meaning the drop in prices is a positive impact to the state’s economy. Real economic output for oil and gas extraction in California is less than 1% of GSP. In contrast, in North Dakota and Texas, oil and gas extraction makes up 3.4% and 8.7% of real output.

Housing is expected to be a source of economic growth for the state in 2015. It is no secret that the state is undersupplied, and Californians spend more on housing than the rest of the nation. According to our analysis, Californians spent on average $26,000 on housing and utilities compared to $16,500 per household for the U.S.

As a result, we believe positive trends in employment, consumer spending, and housing will mean a strong 2015 for the Golden State.


The City National Economy & Jobs Report was created and developed for City National Bank by Beacon Economics, LLC. Unlike many other estimations of current economic activity that are available today, the City National Economy & Jobs Report provides a current estimate of real economic output in the state of California across key industries.


City National Corporation has $32.6 billion in assets. The company’s wholly owned subsidiary, City National Bank, provides banking, investment and trust services through 75 offices, including 16 full-service regional centers, in Southern California, the San Francisco Bay Area, Nevada, New York City, Nashville and Atlanta. City National and its investment affiliates manage or administer $60.8 billion in client investment assets, including $48.1 billion under direct management.

For more information about City National, visit the company’s Website at


Beacon Economics, LLC is a leading provider of economic research, forecasting, industry analysis, and data services. By delivering independent, rigorous analysis, we give our clients the knowledge they need to make the right strategic decisions about investment, growth, revenue, and policy. Learn more at

This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. The Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed, or further published by any person without the written consent of City National Bank. Please cite source when quoting. Copyright 2015, City National Bank.