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It's The Golden State Again

Economic Trends


Tech leads a resurging economy

During the first half of the 1990s, the state of California seemed to be laboring under a curse. Floods, fires, riots, government financial problems, and massive cutbacks in defense spending all conspired to keep the state's economy in low gear. As late as 1993, California's job rolls were still shrinking. Indeed, the troubles in California--which accounts for 11% of U.S. employment--may have significantly held back overall U.S. economic growth.

Yet a newly resurgent California may help keep the weakening U.S. economy afloat this year. According to a recent report from David Hensley and Kathryn Chin of Salomon Brothers Inc., job growth in California in 1996 could reach 3%, far greater than the projected national average of 1.4%.

One key reason for the positive outlook, they note, is that "California's aerospace bust is drawing to a close." For example, after losing 85,000 jobs in 1993 and 1994, aerospace losses slowed to a much more manageable 16,000 in 1995. Instead, California is riding the technology and entertainment boom. Business services--which include computer software--have generated 90,000 jobs over the past year, while the movie industry added another 15,000.

The economic surge in East Asia is reviving California's manufacturing sector. A study from Regional Financial Associates Inc., an economic consulting firm in West Chester, Pa., observes that merchandise exports make up 9% of California's economy, up from 5% in 1985. By comparison, defense spending now is only 4% of the state's economy.

California still suffers from a reputation as an expensive place to live and work. But that, too, is changing. In 1995, prices rose by a minuscule 1.0% in the Los Angeles area, and only 1.9% around San Francisco, far less than the national average of 2.6%. As a result, the state may be able to reduce the outflow of businesses and workers that has plagued it in recent years.BY MICHAEL J. MANDELReturn to top

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Lower inflation helps them most

In 1995, workers saw their hourly wages rise an average of 3.1%, slightly lower than the 3.2% annual increase in the second half of the 1980s. But their dollars are going further--inflation last year was only 2.6%, compared with a 4% rate in the earlier period.

The gains from lower inflation, though, are not evenly distributed. Price increases have slowed the most for necessities such as food and medical care, rather than luxuries such as entertainment. That may mean that low-wage workers--who spend more of their income on necessities--are doing better than the overall numbers indicate.

Food prices, for example, registered a 2.6% increase in 1995, down substantially from their 4.6% annual increase in the second half of the 1980s. That's a big plus for lower-income households, which spend about 17% of their money on food, compared with food's 12% share in upper-income budgets. And the substantial slowdown in health-care inflation may also be helping poorer workers, who devote more of their resources to health care--in part because they are less likely to have health insurance.

What about housing? In the 1980s, lower-income households, which put about one-third of their spending into shelter, saw their wages lag behind housing cost increases. Now, their earnings are rising somewhat faster than housing inflation.BY MICHAEL J. MANDELReturn to top

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