(March 18, 2005) Both the U.S. and California economies showed signs of moderate growth in the fourth quarter of last year, the California Chamber of Commerce Economic Advisory Council concludes in its latest report.

While the U.S. economy did not boom, it was not sluggish either, the council said in its quarterly report to the Chamber Board of Directors. A drop in California non-farm payrolls between November and December probably was not an indication of economic weakness, the council added.

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For the U.S. economy, the initial gross domestic product growth estimate for the fourth quarter of 2004 was 3.2 percent, but should be revised to 3.5 percent or higher in the end, according to the council .  This year’s annual benchmark added 203,000 to the level of nonfarm jobs for March 2004, resulting in stronger growth between mid-2003 and mid-2004. The producer goods and investment sectors stayed on their recovery path, while consumers continued to groom their spending habits.

Foreign Sector
The foreign sector was neither a big positive nor a big negative in the fourth quarter of 2004 as the general economic system adjusted to potentially better international competitiveness of U.S. goods and services due to a lower dollar, the council noted. 

California
The council reported that official California nonfarm payrolls lost 25,000 in December from the month before, describing the drop as 'a disappointing headline number, but probably not indicative of general economic weakness.” The council attributed the drop in large part to the seasonality of the retail trade and volatile nature of the motion picture industry. 

Industry Highlights include:

• Home building was strong in California during 2004 and state tax withholdings in January 2005 were significantly better than anticipated, rising almost 29 percent on a year-over-year basis.
• Bank lending continues to improve, despite the rise in short-term interest rates.  Total U.S. bank loans were up 9.2 percent in January compared to a year ago and industrial and commercial loans were up 4.1 percent.
• The California commercial real estate sector was in transition during 2004 with significant improvements in Southern California and some stabilizing trends in Northern California.
• The tourism industry is cautiously optimistic. The weaker dollar has sparked more interest from European tourists and the domestic drive continue to dominate the industry with the biggest increase in San Francisco.
• Good prices and healthy crop volumes made 2004 a good year for agriculture.  Prospects for 2005 look promising as water conditions have improved.

A risk for Southern California, the council notes, is that the defense budget could be trimmed and some weapons programs with California content might be cut back. The base realignment and closure (BRAC) process also could put a damper on California’s economic prospects, the council added.

The council also pointed out that as the California economy continues on its road to recovery, transportation issues such as congestion have suddenly become a hot topic.

The council is chaired by G-U Kruege, vice president of Institutional Housing Partners. Council members include leading economists from the private and public sectors.

For more information on this economic outlook report, or to view past reports, please visit the Chamber’s website at www.calchamber.com.

Staff Contact: Dave Kilby