Is California in Recession? (Part V)

Back in mid-December, Political Calculations asked if California was in recession. Following last week’s state-level GDP release for 2017Q4 and Philadelphia Fed indices from a week and a half ago — it’s likely no recession occurred, and is currently not occurring.

Figure 1: California GDP in millions of Ch.2009$ SAAR (blue, left log scale), California coincident index (red, right log scale). 2018Q3 observation is forecast implied by Philadelphia Fed leading index. Source: BEA, Philadelphia Fed, author’s calculations.

California GDP continues to rise, with the most recent period of q/q negative growth in 2017Q1, not in the latter part of the year suggested by Political Calculations. Hence, by the rule of thumb of two consecutive quarters of negative q/q growth, no recession has occurred in California. Furthermore, the Philadelphia Fed’s coincident indices — based on a number of variables including nonfarm payroll employment — suggests no downturn, either in the past, or looking through 2018Q3. This all confirms the point that one should not make inferences regarding economic activity based on soley labor market indicators drawn from the household survey, at the state level.

Previous assessments: [1] [2] [3] [4].

30 thoughts on “Is California in Recession? (Part V)

  1. Moses Herzog

    All of the above stated by Menzie in this post, is very suspect, as Menzie is using log calculations again.

    [ that was a joke ]

  2. Moses Herzog

    BTW, I don’t like that graph’s labels either, as I am the only one allowed on this blog to use an apostrophe after the letter f.

  3. randomworker

    Per Forbes, California’s economy is the worlds 5th largest.

    “California’s economy just made a huge leap.

    If the state –with its 39.5 million people – was an independent country, it would have the fifth largest economy in the world, according to new federal figured released on Friday – just surpassing the United Kingdom, which has a population of 65.6 million.”

    1. pgl

      California’s population may soon pass 40 million people – a fact one might not know as one reads the usual spin from our right wing guests about people fleeing this allegedly socialist state! And as you noted – Cali’s income per person dominates that of the UK!

  4. Bruce Hall

    An interesting visualization:

    Compared with egalitarian Wisconsin, California is a bit elitist, but that pales in comparison with New York. Just pointing out the problem of using averages such as real GDP per person. Also see:

    Perspective is important when you discuss politics and the economy. The question is whether the “trickle down” effect in New York and California is working effectively for the non-1%. Democrats condemn income inequality, but politically control states with the greatest inequality.

    So, is California in a recession? Not by traditional measures.

  5. DRK

    Also interesting for a state known for its decadence, drinking, drugs, partying, sexual impropriety, non homogeneous culture, majority minority, and issues with illegal and legal immigrants gangs and violence- it turns out to have a life expectancy of 80.8, 0.6 years longer than Utah which is dominated by a majority religious people who practice caring for there temples with exercise and diet (and does have quite a long life expectancy at 80.2)

    1. pgl

      “its decadence, drinking, drugs, partying, sexual impropriety, non homogeneous culture, majority minority, and issues with illegal and legal immigrants gangs and violence”

      WTF? Aren’t you referring to New York City? Or perhaps the University of Georgia?

    2. Bruce Hall

      California life expectancy by ethnicity: . (Note: Hawaii has the longest life expectancy; California tied for 4th)

      Percent of states with highest percent of Asian American population:
      • Hawaii #1
      • California #2

      Soooo, it may be climate or it may be having a high percentage of the population that are ethnic Asians.

      I’d guess having huge income disparity is not a contributing factor.

      1. pgl

        “California occupies the second place in the country when it comes to being home to proportional Asian-American populations. It also has the largest absolute population of Asian Americans of any US state. There are 5,556,592 Asian Americans out of the state’s population of 37,253,956, as per the 2010 census. ”

        Cali’s population is now 39.8 million. I wonder how much of the 2.5 million is Asian American. To here Peaky talk about people fleeing California in droves – I bet it is more than 100% of the increase. More Asians and less Klan members like Peaky. Cali is getting better and better!

        Actually – there may be a life style choice for people in Cali and Hawaii living longer – more of their diet is health sea food and less is the usual fatty diets one sees down South!

  6. joseph

    Bruce Hall: “Compared with egalitarian Wisconsin, California is a bit elitist, but that pales in comparison with New York …

    The question is whether the “trickle down” effect in New York and California is working effectively for the non-1%. Democrats condemn income inequality, but politically control states with the greatest inequality.”

    Bruce, surely when you say “pales in comparison” you know that numbers matter. The Gini in New York, according to your link, is 0.499 and for Wisconsin is 0.430. Do you know how Gini is calculated? Do you know what a 0.069 difference in Gini corresponds to in dollars?

    And surely you know that the Gini you linked to is pre-tax income. After-tax income and after-benefits would look quite different. And you are forever complaining about high taxes and redistribution, so your complaints about the Gini index are a joke.

    1. Bruce Hall

      Joseph, I believe I gave you two links regarding income inequality. You seem to have missed the first one. Naturally, you also missed the point: GDP per capita is misleading without other context.

      1. 2slugbaits

        The California income inequality Gini coefficient is an uncomfortable fact and a fair point. It’s also worse today (for both CA and WI) than it was in 2010, which is the year shown in your Wiki link. And I agree that mean income can be deceptive; OTOH, the median income for California is higher than median income for Wisconsin, and by quite a bit.

          1. Bruce Hall


            That’s fine; use whatever source you want for the median income. I’ll use yours.
            63,783/54,610= 16.8% higher median income
            19.39/15.17= 27.8% higher hourly salary for California residents to live comparably to Wisconsin residents

          2. Menzie Chinn Post author

            Bruce Hall: The deflated median incomes I reported take into account the higher cost of living in California. That is what it means to express an income in “inflation adjusted 2016 dollars”.

            Please refer to an economics textbook for the idea of deflation into constant numeraire. (Or you can wait — your comments have inspired me to write a post on real vs. nominal…again).

          3. Bruce Hall

            Menzie, if you take the latest year in an economic series ( for comparison, I don’t see where “inflation adjusted” has relevance since all data is current.

            On the other hand, when you look at cost of living, you can compare the current income to the current cost of living to see how the current income translates into relative wealth. The fact that California’s median income is higher than Wisconsin’s (or many other states) can’t be challenged. What can be challenged is the value of those dollars for California resident’s versus the residents in other states. Perhaps that’s why California has a higher poverty rate than many other states (

            This side trip was all about comparing dollar-to-dollar data among states and pointing out that when you live in a state where gasoline costs 33% more than other states or a 2,000 s.f. home costs $2,000,000+, “inflation” (year-to-year cost increases) is not the issue as much as relative costs. This is not just me not understanding “inflation adjusted” (which I do). Let’s call this “affordability”.

            California is great if your income is mid-six figures. It’s okay if your income is low six-figures. You’re in trouble if your income is less than six figures.

            But I’ll be glad to read your post about this.

          4. noneconomist

            Bruce Hall: You seem to have fallen into a common California trap–stereotyping certain areas as completely reflective of the whole– and are having trouble getting out of it. Prime example: “…a 2000 sf home costs $2,000,000+….” Huh?
            I own a 1500 sf home in fairly good repair on acreage with dependable water. Using your numbers, my property should be worth $1,500,000. If only.
            I live in “metro Sacramento” where the median home value (according to Zillow) is $401,875. THAT’s high enough but not anywhere near the figure you’re throwing around. Noteworthy too because the two highest priced counties in the region, both carried by Trump, are considerably above that median. El Dorado ($464,427) and Placer ($479.046) are also two of the state’s wealthiest counties based on median income. Both, by the way, gained population in the last year.
            Other area county medians are similar or lower: Yolo ($429,829) Sacramento ($359,509), Sutter ($283,192) Yuba ($279,900).Again, expensive enough, but not close to the figure you cite.
            No one (at least no one I know) will dispute California being more expensive or that there are people leaving (not in “droves” however) or that there’s a definite need for more housing across the state.
            But greener pastures are also getting harder to find. Median house price in Metro Reno is over $350,000 and in Metro Boise $244, 185 (up 13% in the past year and rising).

          5. 2slugbaits

            Bruce Hall or a 2,000 s.f. home costs $2,000,000+, “inflation” (year-to-year cost increases) is not the issue as much as relative costs.

            Hmmm. Since homes are wealth, and if homes prices are increasing above the rate of inflation (as you claim), doesn’t that mean middle class wealth is increasing? If things are so bad, then why don’t Californians like our friend PeakTrader cash in that wealth and move to some conservative white place like Idaho where housing is cheap?

          6. Bruce Hall


            Using BEA data (, I found the following for 2015:
            RPI1 Real Personal Income by state 1/
            Real per capita personal income (chained (2009) dollars) 2/

            State or DC

            GeoFips GeoName LineCode Description 2015
            06000 California 1
            Real personal income (thousands of chained (2009) dollars)
            06000 California 2
            Real per capita personal income (chained (2009) dollars) 2/

            RPI1 Real Personal Income by state 1/
            State or DC

            GeoFips GeoName LineCode Description 2015
            55000 Wisconsin 1
            Real personal income (thousands of chained (2009) dollars)
            55000 Wisconsin 2
            Real per capita personal income (chained (2009) dollars) 2/

            GeoFips GeoName LineCode Description
            00000 United States 1
            Real personal income (thousands of chained (2009) dollars)
            00000 United States 2
            Real per capita personal income (chained (2009) dollars) 2/

            Given the different outcomes from different sources and metrics (median vs. per capita), I have to admit that I’m not sure what the data is actually telling us. I suspect that California having a higher median (mid-point) income, but lower per capita income versus Wisconsin or the U.S. total suggests a lot of California people living in squalor. It also suggests to me that one-factor views of the economy are only going to breed misunderstandings.

            So, is California in a recession? No. Does California have a troubled economy? Based on income disparity, probably.

          7. noneconomist

            BH: $19.79 in San Francisco? Visalia? Placerville? San Diego? Redding? Arcata? El Centro? Long Beach? Sacramento? Ukiah? San Bernardino? Location, as always, has a lot to do with livable wages.

  7. 2slugbaits

    Technical note. The Gini coefficient is a common measure of inequality. And it’s very good and has the advantage of being symmetric regardless of the population size. It’s also intuitive. But it does have some problems if the underlying data is aggregated into income groups. And you can’t decompose the Gini coefficient into the sources of inequality, which is what you really want to know for public policy purposes. That’s because two countries can have identical Gini coefficients (because the Gini is based on the size of the area underneath the Lorenz curve), but two very different levels of inequality because the Lorenz curves have different shapes even though the area between the Lorenz curve and the diagonal are the same. In that case it’s better to use the completely non-intuitive Theil’s-T statistic:

    Theil seems to have used a good chunk of the alphabet…Theil’s-T, Theil’s-L, different versions of Theil’s-U (used in forecasting), etc.

  8. DRK

    I find the correlation between inequality and pushes for balance to be expected, you would not expect a bunch of poor people with equal income to push for redistribution. It is living next to people who buy every house on the block to leave them empty so they don’t have neighbors in the middle of a historic housing shortage and other such behaviors of certain ultra rich the fuel a response.

  9. noneconomist

    Still thinking about that $2,000,000, home BH says is the norm in California. At least in the socialist regions dominated by Democrats where unemployment is under 4%.
    Fear not. Down in the Central Valley in Tulare County, represented in Congress by Devin Nunes, median house prices have been held to a much more reasonable $197K+. In addition, unemployment is only 11%, a rate every market based, freedom loving conservative can be very proud of. As you can see, Devin is using his friendship with the President to good advantage.
    And, just to the south, in Kern Count–championed by Kevin McCarthy–Trump’s “My Kevin”– residents there are enjoying a 9.6% unemployment rate, with the home median at a very affordable $210K+. Way to go, future House Speaker and Trump toady. Kissing the President’s ample backside is obviously paying off bigly for you and Devin and your adoring constituents.

  10. Bellanson

    the big problem with drawing conclusions about California is just that: Big – as in Cali is huge, and varied. You can say almost anything you want about California and find significant facts that support it.
    Bottom line: the state attracts people from elsewhere because the job market in Silicon Valley and LA is relatively good, with high salaries, even when compared to the cost of living. That is balanced out by a poor job market and much lower real estate costs in the more rural areas.
    This disparity leads to a (in-state) out-migration from e.g. San Jose to e.g. Fresno or Stockton (with a horrendous commute ) or a move to Sacramento or San Diego area where there *are* (slightly less paying) jobs coupled with much lower cost of living.

    Net, net, all median or averages are misleading, and that is reflected in the Gini coefficient.
    It’s not clear to me if it makes sense to compare Cali to e.g. Wisconsin. Cali to Texas or Cali to UK might be more realistic


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