State’s Economy More Robust Than in Rest of U.S., Chief Analyst Says

In a bullish assessment, California’s chief economist on Friday discounted talk of a significant economic slowdown, despite rising energy prices and predictions nationally of a recession.

Department of Finance economist Ted Gibson said that while the economy will probably cool somewhat in California, job and wage growth will remain relatively strong in 2001--in fact, it will be more robust than in the rest of the country.

“We don’t buy the recession story at this point,” Gibson said, adding that he expects a “soft landing” for the U.S. economy.

Gibson said the Federal Reserve’s decision to cut interest rates by half a percentage point earlier this week will help the state and national economy expand more rapidly in the second half of 2001.

Gibson said that even though electricity and natural gas prices are rising, California is better off than most of the rest of the country. He also expects natural gas prices to drop later in the year.

Largely because of the state’s moderate climate and types of industry, California uses less energy per capita than most other states. Gibson cited U.S. Department of Energy statistics showing that California ranks 47th among the 50 states in per capita energy use.

“There are a lot of misconceptions about California and energy use; we are an energy-efficient state,” said Gibson, who has served as the chief economist during Gov. Gray Davis’ tenure, and did so during the last term of Republican Gov. Pete Wilson.

“The whole nation is going to be struggling with [energy costs],” Gibson added. “. . . We are going to share that to a degree. But all I’m saying is that because of our weather and industry mix, we are likely to suffer less in California than they are in Illinois or Pennsylvania.”

Gibson and Department of Finance Director Tim Gage gave their economic assessment as Davis prepared his third budget, set for release next week and expected to top $100 billion. The budget depends on the health of the economy: As more people find jobs and receive raises, they pay more taxes.

Gage said California’s budget will grow in the 2001-2002 fiscal year, but said the growth will be about $2.9 billion less than the legislative analyst’s prediction, which was that the state would have a surplus of $10.3 billion. Gage explained the difference as the result of the Department of Finance’s basing its prediction on more current numbers.

In recent years, Californians collected huge amounts of income--$84 billion in all last year--from stock options, which helped fuel state surpluses in recent years. As the stock market has fallen, income from options will fall, but only by about 10% in the 2001-2002 fiscal year.

Gibson noted that 10 companies--household names such as Cisco Systems, Intel, Hewlett Packard and Wells Fargo--account for 60% of the stock option income. Cisco, may account for as much as 10% of all income from options in California, Gibson said.

Overall, wages will grow by about 5.7% in 2001. In 2000, personal income grew by 11.7%, Gibson said. Home construction will expand in 2001, and exports and the entertainment industry, two of the state’s economic strengths, also are likely to continue to grow.

Gibson said the entertainment industry will be especially busy in the first few months of the year, in anticipation of the possibility of a strike this summer. But he said that despite the possibility of a choppy year, Hollywood is “growing quite nicely.”

“It is almost constrained by their ability to build sound stages,” Gibson said.