State’s Economic Headwinds Intensify After Modest Growth in 2022
California’s economy is projected to weaken in 2023, after a decline in GDP in the first half of 2022 was followed by a recovery in the second half of the year. Spillovers from the tech sector’s correction, the failure of Silicon Valley Bank, a pullback in the state’s housing market, and ongoing headwinds from high inflation and rising interest rates underpin expectations for a tough year for the Golden State’s economy.
The state’s recent population losses are likely to partially reverse in 2023, as immigration flows resume post-pandemic, jobs become less plentiful out of state, and higher mortgage rates make it harder to cash out of California’s housing market. Payroll growth is projected to slow markedly to 1.1% in 2023 from 5.6% in 2022. The Golden State’s job market is under pressure from the technology and housing corrections, which are pushing the state’s unemployment rate higher. As the labor market cools, total personal income is expected to rise at a modest pace of around 2.0% in 2023, lagging inflation.
2023 will be a down year for housing in California, where affordability is more strained than most parts of the country. Single-family housing starts are expected to decline again this year and be down around 25% from 2022. Multi-family housing starts are expected to rise, but not by enough to offset the single-family decline. A big increase in multifamily housing supply should contribute to slower rent increases in 2023.
As is true nationally, personal and business bankruptcies have been very low since the pandemic began as stimulus dollars cushioned business and household finances, but are normalizing higher in 2023, as slack in the labor market, lower business incomes, and higher interest rates squeeze the finances of more vulnerable parts of the state’s economy.
For a PDF version of this publication, click here: April 2023 California State Outlook
