California Economic Outlook Report – December 2020

Scott Anderson
Chief Economist
Bank of the West

Executive Summary

California’s labor market recovery is lagging the nation as job losses in pandemic impacted industries remain high and new business restrictions and stay at home orders begin to bite.

After six consecutive months of job increases through October, employment in California is still 8.4% or 1.47 million jobs below the February peak.

California employment is forecast to decrease 7.1% in 2020 and rebound 1.5% in 2021.

California’s economic downturn would have been much worse without the unprecedented fiscal support from federal and state governments and aggressive monetary action from the Federal Reserve that helped loosen financial conditions and keep California consumers and businesses solvent despite unprecedented sales declines and job loss.

We assume additional substantial fiscal support from the Federal government will be needed and delivered by Congress in late 2020 and/or early 2021 to achieve this modest job growth across the state of California in 2021.

California’s unemployment rate declined to 9.3% in October from 16.4% in May, but remains the fourth highest among states in the nation. Further declines in California’s unemployment rate in 2021 will come much slower than they did this year. The state’s unemployment rate is expected to remain elevated and average 10.2% in 2020 and 8.9% next year, well above the U.S. unemployment rate of 8.1% in 2020 and 6.6% in 2021.

Solid housing demand, record low mortgage rates, and slim new and existing home inventories have turbo charged California’s housing market recovery since the spring decline with existing home sales increasing 19.9% from a year earlier in October. Housing starts are forecast to increase a solid 12.2% in 2021 on firming demand as the pandemic wanes and job growth returns.

California home prices are forecast to rise a robust 10.4% this year – primarily due to a shortage of homes for sale – and moderate to 6.1% in 2021 and 4.0% in 2020 as homebuilders respond to stronger demand by putting up more homes to alleviate the inventory shortfall.

To learn more, check out the California Economic Outlook.


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