CSAC Bulletin Article

Taking the Pulse of California’s Economy

January 31, 2024 Eric Lawyer Jessica Sankus

February 1, 2024

This is the second installment of CSAC’s series on economic assessment resources for county governments. The first installment is available here.

2024: How’s it going so far?

Since the Governor released his administration’s proposed budget for 2024-25 there has been a flurry of commentary and analysis from many camps about the differences in economic assumptions between the administration, the Legislative Analyst’s Office (LAO), and other independent economic think-tanks outside of state government. The three-way tug-of-war between these camps and betting on whose economic forecast will hold water will continue into the summer. In short, it’s too early to know how our economy, the markets, and the resulting impacts on budgets will fare until the dust settles.

While there is much left to be determined before we know the full extent of the state’s budget problem and the implications for local governments’ budgets in the near future, there is one universal certainty: the vital importance of the performance of our economy to our budget picture and the quality of life for Californians. The COVID-19 pandemic wrought many changes to our ways of life, including disruptive economic impacts that remain to be felt through direct impacts on our labor market, global supply chain challenges, and inflation.

The consistent mantra from the administration has remained “expect continued, but slowing economic growth that stops short of assuming a recession.” Beginning in late 2023 economic pundits have pivoted to recurring iterations of “expect a soft landing in 2024.”

There are some signs of reason for optimism, in spite of our budget problem. Stocks just hit a new all-time record, buoyed by good news from the technology markets and indications from the Federal Reserve for planned interest rate reductions in 2024—however, upon the day this bulletin article was published, the Federal Reserve chose not to reduce interest rates. Simultaneously, HdL Companies and Beacon Economics report that their analysis of sales tax revenue trends in California were “confounding,” further offering, “contrary to expectations, 2023 saw no plunge in consumer spending despite economic fluctuations.”

While market growth is clearly a positive sign for revenue, those early positive signs may not exactly be resulting in the revenue hoped for in the Governor’s Budget proposal. Just yesterday, the LAO reported that personal income tax payments made through January 2024, were $1 billion (or 11%) short of the Governor’s projections based on current trends.

As the year progresses, as tax filings continue to trickle in, and as we await decisions of the federal reserve, we may have an increasingly clearer picture of the accuracy of the Governor’s Budget proposal and the policy changes that will be needed to address the state’s budget problem and safeguard against impacts to county budgets.

Keeping Up – Economic Monitoring, Analysis, and Commentary Available to Counties

The CSAC GFA team will continue to keep counties apprised of the budget developments and economic outlook. In addition to the recent commentary we shared, there are several publications and data sources that help illuminate our economy:

Legislative Analyst’s Office’s California Economy and Taxes Blog

The Legislative Analyst’s Office (LAO) maintains a blog on the California economy and taxes, including assessments of monthly jobs reports, real-time personal income tax revenue collections, comparisons of U.S. retail sales growth and growth rates of inflation over time, and more. Recent articles of note include:

Public Policy Institute of California

The Public Policy Institute of California (PPIC) is a non-profit, non-partisan research institution, including an Economic Policy Center that “provides accessible, nonpartisan data and research that further understanding of California’s complex economy” with an emphasis on labor market issues. In January 2024, the PPIC’s Economic Policy Center published an “explainer” titled Making Sense of California’s Economy, which explores in greater detail and depth some of the questions that CSAC considered in our last bulletin on California’s economy: How long will we experience a “slowing economy”? What does a “slowing economy” mean, really? What are Californians feeling and expressing about the economy behind the raw data?

Notably, the PPIC argues that strengthening the path to economic prosperity includes creating a specific economic ecosystem, and states that “Key features of this ecosystem include worker and business supports that are tailored to the state’s diverse local needs” a sentiment shared by the family of county governments.

HdL Companies

For those interested in diving into the details of specific economic indicators, HdL Companies hosts free quarterly webinars on California’s retail economy, with overviews of the performance of major industry groups and commentary on what this means for California’s economy. During the most recent webinar in early January 2024, HdL Companies offered this assessment of the third quarter of 2023, “The double-digit gains of the past have slowed down in 2023 and consumer spending, while still positive, has cooled off, with a focus on the balance between discretionary and demand spending. Rising consumer credit delinquencies in auto loans and credit cards are noted, but personal savings rate remains at a decent level.” Along with this webinar, HdL Companies published the resource California Sales Tax Trends and Economic Drivers.

By The Numbers – Year-Round Data and Reports Available to Counties

Other economic monitoring tools previously reported on by CSAC that are routinely updated include the following:

California Department of Finance’s Finance Bulletin

The California Department of Finance maintains an interactive dashboard that accompanies the department’s monthly finance bulletin. The monthly finance bulletin, introduced in 2009, is an economic update and cash report that notes state and national economic trends. You can receive an email notification when the newest edition of the finance bulletin is published by subscribing to the finance bulletin mailing list.

Legislative Analyst’s Office’s Fiscal Outlook

The LAO annual Fiscal Outlook publication provides an independent assessment of the California state budget condition for the upcoming fiscal year. The 2024-25 Fiscal Outlook was published in early December 2023 and included the LAO’s assumptions about the state’s economy for fiscal years 2024-25 through 2027-28 and how the state’s economy affects the state’s annual revenues and expenditures. As previously reported by CSAC, the LAO forecasted a state budget deficit of $68 billion in fiscal year 2024-25 due mostly to the net effect of unexpected revenue changes in 2022-23 and 2023-24. The Fiscal Outlook details the perceived economic weaknesses and forecasted revenue changes that resulted in the anticipated state budget shortfall. You can receive an email notification when the LAO publishes the 2024-25 Fiscal Outlook by subscribing to the LAO news releases.

California Employment Development Department’s Data Library

The California Employment Development Department’s (EDD) maintains and publishes a data library regarding California industries, occupations, employment projections, wages, and labor force. The data library includes tools available to counties to monitor monthly labor force and unemployment rate data by county, GIS interactive mapping to display labor force and unemployment data, and more. Further, the EDD provides an unemployment insurance claims data dashboard tool that shows claim data broken out by county, industry, and other demographics. You can receive email notifications when the EDD publishes updated information to the data library and other resources by subscribing to EDD news releases.