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US and California Economies Expect Sluggish Recovery Amid Financial Challenges

Both the US and California economies are projected to experience sluggish recoveries following economic downturns. Recent data indicates that the revenue picture in California is stabilizing, no longer deteriorating despite several lean years ahead. With the Federal Reserve unable to cut rates and a reluctant banking sector, consumer debt burdens are significant. The oversupply of real estate continues to hinder growth. Job and GDP growth patterns reveal enduring challenges that could shape the economic landscape well into the future.

daniel-mullen
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US and California Economies Expect Sluggish Recovery Amid Financial Challenges

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  1. 11-7-09 • US economy • sluggish recovery expected • CA economy • sluggish recovery also expected • CA revenue picture • no longer deteriorating • several lean years ahead

  2. Quarterly US real GDP growth, 2006-2009 % change, annual rate

  3. GDP growth and job growth, 2006-2009 % change, annual rate real GDP jobs

  4. Annual US real GDP growth, 1976-2009 % change

  5. GDP growth and job growth, 1976-2009 % change real GDP jobs 1982-84: comparable?

  6. This isn’t 1983 • Federal Reserve can’t cut rates to stimulate economy • Bank sector is still a mess, reluctant to lend • Oversupply of residential and commercial real estate after bursting of bubble • Consumers overburdened with debt

  7. Annual US real GDP growth, 1976-2015 % change 1982-84 2009-11

  8. GDP growth and job growth, 1976-2015 % change 1983 1992 2002 2010

  9. Recent job growth: CA v US % change, annual rate US CA

  10. Annual job growth: CA v US % change CA US

  11. 2008-09 CA General Fund revenue $2.9b Corporate tax $9.8b Personal income tax $45.3b Personal income tax $45.3b Sales tax $24.6b

  12. CA total General Fund tax revenue and PITMay forecast including Aug changes $ billions total PIT

  13. CA General Fund PIT revenueMay forecast including Aug changes $ billions

  14. Capital gains, % of personal income

  15. How is 09-10 shaping up? • Jul-Oct: $22.7b, $1.4b below DOF forecast • DOF forecast does not include $3b of unspecified reductions so $1.4b is misleading • Withholding down 7%, wages and salaries probably not down that far

  16. Uncertainties • Will people withhold more? • Budget estimates $1.7b in 09-10 • Did people reduce withholding before Nov. 1? • Estimated payments • Old law: people were supposed to send half Apr/Jun, half Sep/Dec but sent 2/3 Sep/Dec • New law: 30% April, 40% June, 30% Dec but how will people actually respond?

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