“The California economy, much like the U.S. overall, braked sharply in the first quarter. The slowing was driven by the production economy – manufacturing, natural resources and construction, which all underperformed after a great 2014.  Still, the state outperformed the nation in terms of growth, a pattern we have consistently seen over the last few years. And there is little reason to believe that the first-quarter downtrend is anything more than transitory, particularly given the state’s strong employment growth over the same  period.


With slowing growth in the oil states, we believe California may quickly become the most important state driver of national growth in 2015. This is due in part to the incredible trends seen in Silicon Valley and the high tech-industry.”

– Dr. Christopher Thornberg

Founding Partner, Beacon Economics


California Leads the Nation: The California economy began the year on a higher note than the nation as a whole, expanding by 0.7% during the first quarter. This compares to a 0.2% contraction in the U.S. economy, where global headwinds weighed down headline numbers.

Broad-Based Gains: A mix of both high- and low-wage jobs drove the job gains, as the Professional and Business Services and Leisure and Hospitality sectors posted the largest increases to company payrolls.

Tech Economy Shines: The Silicon Valley economy continues to expand at a breakneck pace.

Rapid employment growth in high-wage industries continued over the past year in the County of Santa Clara, as the region’s heavy mixture of technology and business services firms continues to be a winning formula for growth.


“California’s economy continues to improve and to outpace the nation. Increased construction activity and robust business investment in the technology sector are driving stronger job growth, spurring innovation and adding momentum to the state’s diversified economy.”

Russell Goldsmith, Chairman and CEO, City National


Slow First-Quarter Growth Still Outpaces Nation

California’s economy started the year slowly, but still turned in  a better performance than during the first quarter of 2014. Real gross state product totaled $2.156 trillion in the first quarter of 2015 according to the latest estimates by Beacon Economics. That represents a 0.7% annualized increase over the prior quarter.

This may be down from the 2.2% growth in the fourth quarter of 2014, but compares favorably to the nation as a whole.

National gross domestic product decreased 0.2% in the first quarter. From the second quarter of 2014 through the first quarter of 2015, Beacon Economics estimates the California economy grew by 3.6%. This is up from the 2.8% annual growth in all of 2014, as the contraction in the first quarter of last year weighed down the year’s total growth. This also marks the first time since 2006 that real output grew faster than 3% annually.

Growth in California’s real gross state product was much less broad-based in the first quarter of 2015 than in the previous quarter, as global headwinds and the West Coast ports labor disruption weighed down some sectors more than others.

The Information sector made one of the two largest contributions to California’s gross state product growth

in the first quarter of 2015 and contributed 0.32 percentage points to the state’s headline 0.7% growth number. Output in this industry has been boosted by nationwide

intellectual property investments in categories such as software, entertainment, literary and artistic originals. Nationwide business investment accelerated in each of these categories during the first quarter, with output growth from companies that offer software as a service being particularly strong.

The Wholesale Trade sector was the other largest driver of output growth during the first quarter of 2015, and contributed 0.32 percentage points to overall growth in California. Wholesale Trade employment increased at a 5.7% annualized rate during the first quarter, up from a 3.0% rate of growth in the fourth quarter of 2014.


Employment Growth Accelerates, Finishing Year on Strong Note

Since reaching bottom in February 2010, California has been the single largest source of new jobs in the United States. With

1.86 million jobs created, California accounts for 16.2% of all new jobs created in the nation since 2010—that’s over 350,000 more jobs than the next closest competitor, Texas. On a percentage basis, California ranks fourth behind North Dakota, Utah and Texas.

Job growth has been broad-based across industries, wage categories and skill levels. The Construction sector, which includes many lower-skilled positions, posted the largest percentage gains in recent months amid surging residential and nonresidential building activity. However, higher-skilled jobs in the Professional, Scientific and Technical Services sector were the second fastest-growing category, adding more than

70,000 new positions over the past year. Administrative Support, Logistics and Tourism rounded out the top five fastest-growing employment sectors in the state. Only the Mining and Farm sectors posted job losses recently, but those losses have been more than offset by robust growth in California’s remaining sectors.

California’s latest job gains have pushed the state’s unemployment rate down, and unemployment currently stands at 6.7%. This drop has occurred as the labor force has expanded at a 0.5% annual rate, indicating that new residents are entering the labor force and finding jobs.

The number of long-term unemployed, discouraged workers and those working part time for economic reasons all declined as a share of the labor force compared to the same time last year.

Annual nonfarm job growth came in at 1.6% to start 2015. While this may be down from the 3.0% growth rate from 2012 to 2014, it is still considerably higher than the long run

average growth of 1.1% since 1990. Post-recession growth rates are typically stronger than the historical average, and this quarter’s growth is partly due to the economy transitioning to more normal rates of job creation in the state.


Silicon Valley

Silicon Valley looks better with each new quarter. The area’s employment growth has been nothing short of impressive, with employment reaching new highs each quarter. Total nonfarm employment stood at 1.04 million jobs in the first quarter of 2015, an increase of 21.9%, or roughly 187,000 jobs, over the low point in the third quarter of 2009 and an increase of 4.4%, or roughly 52,000 jobs, over the first quarter of 2014. Right now, the labor market in the Silicon Valley is the fastest growing of any region in California.

Employment estimates for the month of April show that the Professional, Scientific and Technical Services sector added more jobs between April 2014 and April 2015 than any other sector, posting 13.6%. It is not surprising to see job growth in occupations such as engineering and law in an economy with a heavy concentration of high-tech jobs. The Information sector, which includes occupations in data processing, grew 16.3% during this time.

Meanwhile, the Construction and Real Estate sectors continued to grow with the hot real estate market, posting 12.2% and 7.6% yearly growth, respectively. Even the Government sector, which faced substantial cutbacks throughout the state over the past several years, grew by 2.3% during this time. Beacon Economics expects total nonfarm employment growth to slow only slightly over the next few quarters, standing at 4.0% growth year over year by the end of 2015. The unemployment rate is expected to continue to fall to an estimated 4.0% by the end of the year.


Looking ahead, expect California to grow at a faster clip for the rest of the year than it did in 2014. In contrast, expect the U.S. economy to grow in line with the growth the nation experienced in 2014.

Employment gains in California over the last year have continued in 2015, something that will boost consumer spending, which makes up a large portion of economic growth in the state.

The average weekly wage in California grew 3.7% from the third quarter of 2013 to the third quarter of 2014, with

consumer spending accounting for about two-thirds of economic activity. This relatively strong wage growth should bode well for GSP growth in 2015.

To date, lower gas prices have been slow to show up as a positive in California’s economy as consumers have opted to save their increased disposable incomes rather than spending them back into the economy. However, the protracted nature of the decrease in oil prices should lead to increased consumer spending throughout the rest of 2015.

Housing is also expected to be a source of economic growth in California in 2015. It is no secret that the state suffers from an undersupply of housing, or that Californians spend more on housing than residents in the nation overall. The  undersupply  has been evident during the majority of the recovery since the recession as prices rebounded rapidly amid weak permit growth and construction activity. However, recent permit activity has been strong and sales have trended upward. Just how these developments affect growth in California’s economy is something we’ll be watching closely in the year ahead.


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.


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 www.BeaconEcon.com.


City National Corporation has $32.7 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 $62.0 billion in client investment assets, including $48.4 billion under direct management.

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

On January 22, 2015, City National announced plans to merge with Royal Bank of Canada. The transaction is expected to close in the fourth quarter of calendar year 2015, pending regulatory approval and other customary closing conditions.

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.