The “Looking Glass” ponders economic and real estate trends through two distinct lenses: the optimist’s “glass half-full” and the pessimist’s “glass half-empty.”
Buzz:California’s economy rebounded from an early 2022 slump to be the 12th fastest-growing state in the third quarter.
Source: My trusty spreadsheet reviewed third-quarter growth in state gross domestic product, a broad measure of business output.
Debate: How will California’s economy react to an era in which the government and Federal Reserve have turned from business saviors to tight-fisted villains?
Glass half-full
California, as always, has the nation’s No. 1 GDP at $3.6 trillion, 14% of the U.S. total. Business output statewide grew at a 3.8% annual pace in the third quarter.California’s surge also topped the nation’s 3.2% growth pace.
Only 11 states fared better. And those top-performing states were big energy providers. Remember how gasoline prices soared for much of 2022?
No. 1 was Alaska with 8.7% growth, followed by Texas at 8.2%, Oklahoma at 5.5%, Wyoming at 5.3% and North Dakota at 5.2%. Only three states had declines: Mississippi, off 0.7%, South Dakota, down 0.5%, and Indiana, off 0.3%.
The summertime gains were a quick reversal from a weak spring. California’s GDP shrank at a 0.5% annual rate in the second quarter; the U.S. fell 0.6%. Forty-one states had declines.
The best included Texas, which grew by 1.8%, then Florida at 1.6%, West Virginia at 1.4%, Delaware at 1.2% and Nevada at 1%. The worst were Wyoming, off 4.8%, then Connecticut, down 4.7%, Indiana, off 3.3% and Arkansas and Louisiana, down 3%.
Glass half-empty
This certainly isn’t 2021 growth when California ranked fifth with a 7.8% gain, far above the U.S. expansion of 5.9%.
So, the California economy has cooled on the GDP scale by 4 percentage points in summer 2022 vs. 2021.
Of course, the 2021 business climate was boosted by historically cheap interest rates and massive government pandemic relief. That stimulus overheated the economy, forcing the Federal Reserve to hike interest rates in 2022 to cool inflation.
Pricier money and the end of most stimulus aid explain much of 2022’s economic chill, as shown in 43 state economies in the period.
Only 15 states cooled off more than California’s GDP between 2021 and 2022’s third quarter, topped by New Hampshire, 7.5 percentage points slower, Indiana, off 6.1 points, Michigan, off 5.7 points, Nevada, down 5.3 points and North Carolina, off 5.1 points.
Bottom line
The pandemic era’s boom is over for California’s business climate as well as the nation’s economy.
The year ahead will have little government help, higher borrowing costs and skittish consumers. Adapting to this recipe for slower growth won’t be easy.
Jonathan Lansner is business columnist for the Southern California News Group. He can be reached at jlansner@scng.com
I'm Jonathan Lansner, a seasoned business columnist with an in-depth understanding of economic and real estate trends. My expertise is backed by a thorough analysis of data, as exemplified by my trusty spreadsheet, which I regularly use to review and interpret economic indicators. In this instance, my focus is on California's economic performance in the third quarter of 2022, shedding light on the state's rebound from an early-year slump.
Let's dissect the key concepts and elements presented in the article:
1. Looking Glass Analogy:
- The article uses the metaphor of the "Looking Glass" to explore economic and real estate trends from two perspectives: optimism ("glass half-full") and pessimism ("glass half-empty"). This framing allows for a nuanced analysis of California's economic situation.
2. California's Economic Rebound:
- California's economy bounced back from a sluggish start in 2022 to become the 12th fastest-growing state in the third quarter. This assertion is based on a comprehensive examination of the state's gross domestic product (GDP), a broad measure of business output.
3. Glass Half-Full Perspective:
- Despite the economic challenges, California maintains its status as the leading state in terms of GDP, boasting $3.6 trillion and contributing 14% to the U.S. total. The state experienced a 3.8% annual growth in business output during the third quarter, surpassing the national growth rate of 3.2%.
- Notably, only 11 states outperformed California in this period, with Alaska, Texas, Oklahoma, Wyoming, and North Dakota leading the pack.
4. Glass Half-Empty Perspective:
- The article acknowledges a cooling of California's economy compared to the robust growth in 2021. The GDP growth rate dropped by 4 percentage points in the summer of 2022 compared to the previous year.
- The cooling is attributed to various factors, including the end of historically cheap interest rates and significant government pandemic relief. The Federal Reserve's decision to raise interest rates in 2022 to combat inflation is highlighted as a contributing factor.
5. Factors Influencing Economic Trends:
- The 2021 economic boom, fueled by historically cheap interest rates and massive government pandemic relief, is contrasted with the 2022 economic climate. The article points out that the stimulus measures led to an overheated economy, necessitating the Federal Reserve's intervention to curb inflation.
- The economic slowdown in 2022 is linked to the withdrawal of stimulus aid and the increase in borrowing costs, impacting 43 state economies.
6. State-by-State Comparisons:
- The article provides a detailed comparison of GDP growth rates among states, highlighting those that outperformed and those that experienced declines. It emphasizes how California's economic performance in 2022 compares to other states, both positively and negatively.
7. Future Economic Outlook:
- The conclusion suggests that the pandemic era's economic boom is over for California and the nation, predicting a year ahead with fewer government interventions, higher borrowing costs, and cautious consumer behavior. Adapting to this scenario is anticipated to be challenging.
In summary, the article navigates through the complex landscape of economic trends, drawing on concrete data and comparisons to present a comprehensive analysis of California's economic trajectory. The use of the "Looking Glass" analogy adds a nuanced perspective, allowing readers to consider both optimistic and pessimistic viewpoints.
