California Economic Overview

California Economic Overview

INTRODUCTION 

Space Shuttle Atlantis is Mounted Atop a 747 for Flight Back to the Kennedy Space Center, Florida California is a bellwether economy for the United States, and what happens in the Golden State will affect the national economy on a scale that no other state can match. California is home to high-tech, military, finance, and entertainment powerhouses as well as being a major global agricultural player. California is the most populous state in the USA, and its economy is as big as that of France (and bigger than that of 180 other countries). The state also has one of the country's highest dependencies on illegal immigration and was one of the hardest hit by the mortgage crisis in 2007–2008. Although many people have left California in recent years for more promising economic situations, the state is still a big draw for Americans and foreigners alike who want to make it big in the state where no opportunity goes unexploited and no business plan is considered too crazy.

ECONOMIC HISTORY

Mission Santa Barbara The Spanish were the first to see California as a business opportunity when they set up the religious mission system running the length of "Alta California" beginning in the mid-18th century. These self-supporting religious and military outposts safeguarded Spanish territorial claims and provided the "seeds" of cities like San Francisco, San Diego, and Los Angeles. These were eventually ceded to Mexico at independence (1821) and then to the United States after the Mexican–American War (1846–48). California was still a sleepy agricultural outpost until gold was discovered in 1848 at Sutter's Mill just one month before the war ended.  By 1849 small towns like San Francisco and Sacramento had become cities crammed with people from all over the world seeking their fortunes. By 1850, Congress had already admitted California as a self-governing state, and a whole series of service businesses had begun to develop to "mine the miners" coming back from the hills with bulging saddle bags of gold. Over time, as the gold ran out in the mountains, California moved into its next phase as an agricultural haven, and sparsely populated valleys became huge farms and ranches. When the physical and financial ravages of the Great Depression of the 1930s took down one state economy after another, Americans packed their bags and headed to the land of promises, California. Southern California at this time turned to the entertainment business and light manufacturing, while the northern part of the state embraced finance and global commerce. The Central Valley became the "fruit basket" of the nation. The high-tech industry first developed just south of San Francisco in Silicon Valley beginning in the late 1960s, as did the venture capital business, both being two of the state's most lucrative inventions. The movie, television, and music businesses centered in the Los Angeles region became three of America's biggest exports as well as sources of great cultural influence abroad. Nowadays, California faces problems of budgetary chaos, high unemployment, and a dwindling tax base. However, hardly anyone believes that California cannot reinvent itself once again to stay on top of the American economic pile.

AGRICULTURE

Vineyards in Santa Ynez Valley California may have an image of high tech and glitzy entertainment, but at its heart is a massive agricultural industry. More than half of America's fruit, nuts, and vegetables are grown here, as are 80 percent of America's olives. Grapes for wine and table use amount to close to 4 million tons per year, topping $3 billion in revenues even before they are turned into wine and juices that rake in $45 billion. California accounts for over 99 percent of American production of almonds, artichokes, dates, figs, kiwi, persimmons, pistachios, prunes, raisins, and walnuts.  The state is the nation's leading producer of strawberries at 1.4 billion pounds per year with a value of $700 million and employing more than 48,000 people. Much to the dismay of Wisconsin, California is the nation's number one dairy state and its top farm commodity is milk, not grapes. Milk and cream generate over $7 billion, while beef cattle add another $2 billion per year to the state's economy. Chickens and eggs bring in $1 billion of annual revenue for the Golden State; hogs, sheep, and lambs account for $75 million per year. Aquaculture and honey production each produce $14 million annually. California's total agricultural output—before processing—is over $37 billion per year, almost twice that of its nearest U.S. competitor, Texas.

BANKING AND FINANCIAL SERVICES

Transamerica Pyramid in the Financial District of San Francisco California has some big homegrown players in the banking industry. Wells Fargo, the state's oldest bank (founded 1852), has $1.3 trillion in assets, 10,000 branch banks, and 12,000 ATMs nationwide. Bank of America was also originally a California company before moving to Charlotte, North Carolina. Every big American bank and just about every major international bank has a presence in California to make sure they can tap into the nation's biggest economy. California's banking and finance industries are centered in San Francisco and the Bay Area, as is the Pacific Stock Exchange. California also has one of the nation's nine reserve banks responsible for the printing of money and minting of coins, although the state's pioneers began minting their own coins well before statehood in 1850.

COMMUNICATIONS

California has been on the cutting edge of communications technology from the time of its association with the aeronautics industry just prior to World War II. Further work provided by NASA and the state's 21,627 defense contractors has kept it in the forefront, as has the location of top research universities throughout the state. This is "the home of the Internet" and the state has the highest number of mobile phones in the United States, as well as a 13.1% tax on their usage.

CONSTRUCTION

The construction business in California was hit hard by the credit crisis of 2008–2009. Jobs in this industry make up about 6 percent of all jobs in the state with an average wage of $51,621. Residential construction starts (new homes) began to tail off in 2006, having peaked at 13,064 in June of that year, and were down to 2,772 by June 2009. Non-residential (commercial, industrial, and institutional) projects have shown increases since early 2008 and were greatly assisted by the national stimulus packages of 2009. According to McGraw-Hill's "California Construction Outlook 2009," this sector will decline as a whole by 4 percent in 2009 versus almost 20 percent in 2008. The non-residential sector will suffer the most with a projected 14 percent decrease.

EDUCATION

The Golden State is home to some of the most prestigious universities in the country, including Stanford, UC Berkeley, UCLA, and USC, all with top international reputations. In addition to 36 public university campuses with over 600,000 students, the state has hundreds of private universities serving students from all over the world. California has 9,846 public schools serving over six million students in kindergarten through high school. It has the highest spending on primary and secondary public education of any state, at almost $48 billion per year. Nearly 3,500 private K-12 schools serve 565,000 students.

ENERGY

Oil Platform Near Point Conception, Central California The oil and gas industry employs 65,000 people directly and 304,500 indirectly in California, generating $46.3 billion in economic output and the second-highest average wages. Its biggest company, Chevron, directly employs almost 10,000 workers, adding an output of $4.5 billion to the state's economy. Refineries are concentrated in the San Francisco and Los Angeles areas, while gas extraction is centered in Bakersfield. California is also pursuing geothermal energy extraction with nine such power plants scattered around the state, including the world's largest dry-steam power plant at The Geysers Geothermal Area just north of San Francisco. This single plant provides power to 1.8 million Californians.

ENTERTAINMENT

Universal Studios Arts and Entertainment jobs make up 1.6% of the California labor force and have average wages of $46,982 per year. Unlike many business sectors in California, the entertainment industry still has a respectable growth rate in excess of 6 percent per year, proving once again that entertainment is recession-proof. Entertainment, by no means the largest business in the state, is certainly one of its best known and one with massive international cultural impact. The nation's television, music, and motion picture businesses are all centered in southern California, with Los Angeles County getting the bulk of the trade, although the music industry is gradually migrating north to the San Francisco Bay Area.

INSURANCE

Insurers in California employ 244,000 people and invest $723 billion in the state economy, including $29.2 billion for state and municipal bonds. These investments finance the construction of schools, highways, water treatment systems, low-cost housing, and other civic projects. Insurance companies generate over $2 billion each year in taxes paid on insurance premiums, making insurance the fourth largest source of revenue for the state's coffers. Health insurance plans spend more than $79 billion on medical care for their California members.

MANUFACTURING

About 1.3 million Californians still hold manufacturing jobs, accounting for 9.1 percent of total private company payroll, and these jobs do, on average, pay $66,200 per year versus a statewide wage of $54,500. Nevertheless, manufacturing in California is in a deep decline. According to a 2009 report by the Milken Institute, a publicly supported, independent think tank, America's most populous state lost nearly 26 percent of its total manufacturing employment from 1990 to 2007. The steepest declines occurred in high-tech manufacturing with an average yearly wage of $115,000. Computers and electronic products still remain California's top export, accounting for 42 percent of all exports. Jobs lost in the tech-manufacturing area, it should be noted, were mainly taken over by robotics rather than outsourcing to other states or nations. Any gains across the state in specific industrial manufacturing jobs were in lower-value industries like food and beverage processing and cement works. Traditional manufacturing jobs tend to be centered in southern California, while the northern part of the state has drawn the majority of technical manufacturing, barring those in aeronautics. Most of California's overall decline in manufacturing has been blamed on regulatory burden and high workers' compensation costs. However, losses in the state's manufacturing sector are not significantly different than the overall percentage losses for the United States to date (respectively 1.3 percent and 1.2 percent per annum).

MINING AND EXTRACTION

California ranks third behind Arizona and Nevada in non-fuel mineral production, and it extracts about 6.3% of the U.S. total. The total market value of mineral production in the state runs around $4 billion per year. California produces about 30 different industrial minerals and leads the nation in the production of sand, gravel, portland cement, diatomite, and natural sodium sulfate and is the country's only producer of boron and rare earths. The only metals California produces are gold and silver. The Golden State is in sixth place for gold production nationwide. There are about 660 active mines producing non-fuel minerals, and approximately 10,000 people are employed in this sector.

NONPROFIT

Conducting Research at Channel Islands National Marine Sanctuary California has over 144,000 nonprofit organizations and is home to 10.2 percent of all nonprofits in the United States. There are 893,000 nonprofit employees in California (one out of every 17 paid workers statewide). Of the state's nonprofits, 74.3 percent are "public charities" and are registered as 501(c)3 organizations. California has three charities per 1,000 citizens.

RETAIL

The retail sector in California generates over $350 billion per year (about $10,000 per capita). It also employs 10.7 percent of the workforce (slightly less than the national percentage) with an average annual wage of $30,887. The California image of a "shopping mall society" has given way as more retail sales move from over-the-counter to over-the-Internet. This might explain why this Internet-intensive state's retail jobs are growing by an average of 6.7 percent as other job sectors have declined in the face of recession.

TECHNOLOGY

Apple Computer and Their Popular iPod Product Line No place in the world is more associated with technology than California and, more specifically, Silicon Valley between San Francisco and San Jose. The development of the silicon computer chip launched a technology boom that grows every year at statewide, national, and international levels. The information technology (IT) sector in California is so integrated into the economy that it is difficult to isolate it as an individual area of business. All aspects of the entertainment industry use computer technology, as do the state's sizeable financial services and the state's largest cargo port in Los Angeles County. No respectable California farmer would be without a satellite link to check on global commodity prices before selling. Google, Intel, Sun Microsystems, Apple, Oracle, and Industrial Light & Magic are just a handful of the world's big high-tech players that call California their birthplace and home. The state is also at the center of biotechnology, with clusters of biotech firms in Silicon Valley and in the San Diego area. High tech plays a dominant role in almost every aspect of the state's $1.7 trillion economy.

TRANSPORTATION

Transportation and warehousing generate 2.7 percent of California's jobs. Rail, truck, air, sea, and pipeline transport are all active businesses in the state. Rail: 31 freight railroads on 5,861 miles of track Road: 168,076 miles of public roads Sea: 9 seaports Air: 87,421,283 passengers per year Pipeline: $16 billion worth of natural gas transported per year

TRAVEL AND TOURISM

Total direct spending on travel in California currently exceeds $97.6 billion per year. Tourism directly supports 924,000 jobs, with wages of $30.6 billion. Tourism generates over $1.5 billion in local taxes and $2.8 billion in state taxes. Almost 19 percent of all travel spending in the state is attributable to international tourism. California also hosts over 300 million American visitors each year with 76 percent traveling for leisure and 24 percent for business. The state has the largest portion of domestic travel (approx. 11.3%) in the United States each year.