Comerica Bank's California Index Declined Sharply in October

Rhea-AI Summary

The Comerica California Economic Activity Index fell by 4.9% annualized for the three months ending in October, following strong growth earlier in the year. Despite the decline, the Index remains up 5.7% from the previous year. Key components include a 59,800 increase in employment, although unemployment insurance claims also rose. October saw a 13.0% drop in housing starts and a 7.2% decrease in house prices over the last five months. The economic outlook for California indicates potential further softening due to rising unemployment, high interest rates, and sluggish consumer spending, particularly affecting the tech sector.

Positive

• Employed increased by 59,800.
• Index remains up 5.7% compared to last year.

Negative

• Index declined by 4.9% annualized.
• Unemployment insurance claims rose for four consecutive months.
• Housing starts fell by 13.0% in October.
• House prices declined for five consecutive months, down 7.2% since May.
• Weakness in the travel industry with hotel occupancy and air passenger traffic both declining.

DALLAS, Jan. 31, 2023 /PRNewswire/ -- The Comerica California Economic Activity Index declined 4.9% annualized in the three months through October. The Index has turned lower after robust increases in the first half of the year, but was still up 5.7% from a year-ago in October.

Four of the nine components that constitute the Index rose in October. Employment rose by 59,800, but continuing claims for unemployment insurance rose, too, for the fourth consecutive month, after falling in the first half of the year. California's unemployment rate, which fell nearly 2 percentage points in the first seven months of the year, rose in October. The unemployment rate is likely to rise further in the coming months, as key sectors like tech face strong headwinds. Electricity consumption by California's industrial sector declined another 0.9% in October after falling 3.0% in the third quarter.

Housing starts fell 13.0% in October. House prices fell for the fifth consecutive month and were down 7.2% from May. Housing affordability is a longstanding problem in California and has gotten worse as first home prices and then interest rates surged post-pandemic. Declines in house prices and weak residential investment are likely in 2023. The travel industry lost momentum as it entered the fourth quarter. The seasonally-adjusted hotel occupancy rate fell 2.4 percentage points in October following a 3.6 percentage point decline in the third quarter. Seasonally adjusted air passenger traffic was down 7.1% in October after an 8.7% contraction in the third quarter.

California's economy is expected to soften in the coming months, as it faces several headwinds from a weakening housing sector, high interest rates and inflation, and slowing consumer spending. On top of these issues that weigh on state economies across the U.S., the tech slowdown is an additional negative for the Golden State.

The Comerica California Economic Activity Index is a monthly composite indicator of state economic activity. The Index provides a wholistic advance view of the state of California's economy, using economic data that are available about one quarter earlier than real GDP is released. The index is comprised of nine components: Nonfarm payroll employment, continuing claims for unemployment insurance, housing starts, house prices, industrial electricity sales, foreign trade, enplanements, hotel occupancy, and state revenues. All data are seasonally adjusted with nominal values converted to constant dollar values as appropriate. To filter out month-to-month volatility in the index components, the index is calculated from the three-month moving averages of its components. Values for a minority of components are projected from the prior months' release due to the timing of data releases.

Comerica Bank is a subsidiary of Comerica Incorporated (NYSE: CMA), a financial services company headquartered in Dallas, Texas, and strategically aligned by three business segments: The Commercial Bank, The Retail Bank and Wealth Management. Comerica focuses on relationships, and helping people and businesses be successful. In addition to Texas, Comerica Bank locations can be found in Michigan, California, Florida and Arizona. Additionally, Comerica has select businesses operating in Canada and Mexico. Comerica reported total assets of $85.4 billion as of Dec. 31, 2022.

To subscribe to our publications or for questions, contact us at ComericaEcon@comerica.com. Archives are available at www.comerica.com/insights.

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SOURCE Comerica Bank

FAQ

What is the Comerica California Economic Activity Index for October 2023?

The Index declined by 4.9% annualized in the three months ending in October 2023.

How does the Comerica California Economic Activity Index compare year-over-year?

The Index is up 5.7% from October of the previous year.

What employment changes were reported for California in October 2023?

Employment rose by 59,800, but unemployment claims also increased for the fourth consecutive month.

What impact did housing have on California's economy in October 2023?

Housing starts fell by 13.0%, and house prices dropped by 7.2% since May.

What are the expected economic challenges for California moving forward?

California's economy is likely to soften due to high interest rates, inflation, and a slowdown in consumer spending.