California Index Improves in May
The Comerica California Economic Activity Index rose 1.6% annualized in the three months through May and was flat from a year earlier. Five components of the index rose in May, while four declined.
Employment rose by 38,200. The good news on employment was marred by a further increase in unemployment insurance claims to above 400,000. The unemployment rate was unchanged at 4.5%, nearly a percentage point above the national average of 3.7%. Seasonally-adjusted industrial electricity sales, a proxy for industrial production in the state, fell in May and were slightly lower in the first five months of 2023 than the same period last year, pointing to softer industrial output.
Housing starts rose for the second consecutive month, but were nonetheless about a sixth lower in the first five months of the year than the same period in 2022. Led by sharp increases in California’s three largest metro areas—Los Angeles, San Diego, and San Francisco—house prices rose for a fourth consecutive month by 1.0%. House prices are rapidly recovering in the Golden State after falling 8% from last May’s peak through the turn of the year; in May they were down 5% from a year earlier. Seasonally-adjusted hotel occupancy fell for the third consecutive month, while air passenger traffic volumes were flat. Real state fiscal revenues recovered in May after a plunge in April (tax season). Real state fiscal revenues are down sharply through the penultimate month of the 2022-2023 fiscal year from the same period the previous fiscal year, reflecting much lower personal income and corporate tax receipts.
California’s economy grew by a modest 0.4% in 2022. It expanded by 1.2% annualized in the first quarter, comfortably above last year’s pace, but still lagging the national economy’s 2.0% expansion. California’s economy is expected to remain soft in the coming months amid headwinds to residential investment, high interest rates, persistent inflation, and slowing consumer spending. On top of these issues weighing on the national economy, the tech slowdown is still an incremental negative for the Golden State.
