Gov. Gavin Newsom’s 2024 budget predicts no recession, but tough times for job seekers
Jobs may be harder to find and your income probably won’t keep up with inflation. But there appears to be no recession looming.
That was the view of Gov. Gavin Newsom in his fiscal 2024 budget, released Tuesday.
“Economic growth is expected to continue, albeit at a slow pace, through 2024 as high interest rates decrease demand,” the budget said.
It’s a shaky forecast. The governor’s economic outlook is hardly a particularly rosy scenario, but a cautiously optimistic one in what Newsom called an “uncertain environment.”
What makes the forecast uncertain is the future of inflation. The Federal Reserve Board raised its key interest rate seven times last year, and more increases are expected as it attempts to cool price increases.
The budget acknowledges that the Fed’s action could change the outlook dramatically.
“The possibility of inflation falling more slowly than expected, or of the Federal Reserve overshooting its policy by tightening more than necessary, poses significant risk to the Governor’s budget forecast,” the state budget analysis warns.
Other forecasts have had similar views. “Uncertainty about California’s 2023 economic outlook abounds,” due to the hard-to-predict path of national economic policy, said the UCLA Anderson state forecast last month.
Tighter job market
California’s unemployment rate sank to 3.8% in September and the latest reading was 4.1% in November. The state has regained the jobs lost during the 2020-21 Covid pandemic, and November marked the 14th straight month the state has gained jobs.
The governor expects job growth to begin slowing this year, as the unemployment rates averages 4.5%. Demand for products and services is likely to weaken. By the spring of 2024, though, the budget expects the Fed to ease its effort to curb inflation, which means increases in job growth.
By 2025, the budget predicts, “both the nation and the state’s nonfarm employment growth are projected to return to steady-state trends.”
But the unemployment rate is likely to remain higher. The state’s jobless rate is forecast to peak in 2025 at 5.2% and then fall to 5% the next year. The state’s rate is historically slightly above the national average, because it tends to be more dependent on international developments and tourism.
Will price increases ease?
The state’s annualized cost of living peaked at 8.3% in June, less than the national average, and was down to 7.5% in August.
The budget warned that inflation in California “remains broad-based” but is increasingly driven by housing price trends. Housing inflation tends to drop more slowly than in other areas, partly because rental agreements cover fixed periods that can last a year.
The forecast sees shelter prices declining more slowly than in other areas, “reflecting the increases in rents in late 2021 and early 2022.”
A big driver of inflation in the state has been gasoline prices, though they’re well below their June peak. A gallon of regular gasoline in California averaged $4.42 Tuesday, according to AAA, well below the $6.44 peak in June.
The budget projects an average California inflation rate this year of 5.3%, dropping to 3.6% next year.
More money to spend?
Wage growth is forecast to remain “moderate,” slower than the 11.1% of 2020 and 7.4% of 2021.
Average wages are not projected to keep with inflation this year, increasing 3.4% but then averaging 3.6% between 2024 and 2026.
At the same time, personal income is seen as continuing to grow, though at a slower pace. This year’s growth is projected to average 4.5%.
A shaky forecast
In line with other economic forecasts, the governor cites several unknowns.
“Conditions in China also present a potential forecast risk, as turmoil stemming from continued lockdowns under a zero-tolerance COVID-19 policy, related unrest, and a potential financial crisis could disrupt the global economy,” the budget says.
It also mentioned that China has also threatened an invasion of Taiwan, “which could be more disruptive to the global supply chain than the Russian invasion of Ukraine as Taiwan is the world’s largest supplier of semiconductors.”
Also on the risk list is the path of California home prices. Prices tumbled late last year, and a sharper decline could mean not only less construction jobs, but hurting the overall economy.
Not all of the risks mean hard times.
If the cost of living increases ease, and there’s some resolution of the Russian invasion of Ukraine, demand both in California and for California products could pick up.
If interest rates stabilize or fall, that could “boost construction spending and other investment.”
This story was originally published January 10, 2023 at 1:23 PM with the headline "Gov. Gavin Newsom’s 2024 budget predicts no recession, but tough times for job seekers."
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