Strong GDP Growth in 2011

California gross domestic product (GDP) estimates generated by the U.S. Bureau of Economic Analysis (BEA) provide a comprehensive measure of the state’s production of goods and services.  Estimates are provided for all major industries on a yearly basis, indicating trends and levels of state output.  According to the advance 2011 estimates from the BEA’s most recent release on June 5, 2012, California’s real GDP (adjusted for inflation) grew by 1.97 percent in 2011.  This was the state’s second consecutive year of growth following ‘Great Recession’ contractions in 2008 and 2009 and was slightly greater than 2010’s gain of 1.71 percent.  These data indicate that California was one of the faster growing state economies in 2011.  Compared with other states, California recorded the 11th highest per capita real GDP of $46,041 (about $4,000 above the national average).   It also posted the 14th highest per capita growth rate with a 1-percent increase over 2010.

California produced a little more than $1.7 trillion in real-valued goods and services in 2011.  This marked an increase of approximately $33.4 billion over the 2010 level.  Compared with the rest of the nation, in 2011, California was the leader in terms of sheer real-valued output in just about every major industry.  The exceptions include mining (led by Texas and Louisiana), the production of non-durable goods (led by Texas), private educational services, and finance and insurance services (both of which were led by New York).  California’s leading industries include real estate; durable goods manufacturing; professional, scientific, and technical services; and information services.

In nominal terms, California produced a little under
$1.96 trillion of goods and services in 2011, almost 50 percent more than Texas, the second largest state economy.


2011 Highlights

Despite the fact that little industry detail is yet available, recent trends can be inferred from the data on broadly defined North American Industry Classification System sectors and past trends in subsector data.

Growth was led by technology industries

Manufacturing in California grew by $8.3 billion from 2010 to 2011, a 3.8-percent increase.  While slightly slower than 2010’s increase of 4.3 percent, this was nevertheless a significant improvement over the 6-percent decline in 2009.  This does not tell the whole story: the production of durable goods was actually the state’s biggest gain for 2011—
$13.9 billion, or 9.9 percent.  This was offset by a decrease of $2.9 billion in the manufacture of non-durable goods.

The growth in durable goods manufacturing was most likely led by computer and electronic product manufacturing.  Although 2011 data are not yet available for this subsector, it accounted for nearly three-quarters of the manufacturing of durable goods in 2010.  From another perspective, the manufacture of computer and electronic products accounted for 5.9 percent of total state output in 2010 compared to just 0.6 percent in 1997.  In nominal terms, the manufacture of computer and electronic products dropped from 4 percent of nominal state output in 1997 to 3.5 percent in 2010.  These trends are reflected in growth rates for the 1997-2010 period: while the sector showed only 59.4 percent nominal growth, its inflation-adjusted growth was an astonishing 1,300 percent.  This reflects the national trend — unsurprising considering California alone accounted for 25.7 percent of the nation’s total real-valued output of computer and electronic products over that period.  The divergence in real and nominal trends is the result of a multi-decade decrease in computer prices and increase in output evident in the BEA’s quality-adjusted computer price index.

Information services continued to show strong growth in 2011, increasing by nearly $9.6 billion, or 7.5 percent.  Despite the lack of 2011 data for the information services subsectors, through 2010 the largest shares of information services have come from broadcasting and telecommunications and the motion picture and sound recording industries.  Information and data processing (Internet) has commanded the information sector’s largest percent gains, however, showing a 10.7 percent increase in 2010 — the only industry in the information sector to grow consistently since pre-recession 2007.  From 1997 through 2010, information and data processing was the state’s second fastest growing industry with a remarkable
547-percent increase.

The professional, scientific, and technical services sector provided California’s next largest gains in 2011, a $9.3 billion dollar increase—a 6.2-percent change.  This sector consists of legal and computer systems design services, among others.  Looking back one year to the most recent available subsector data, the state’s high-tech trend continued in 2010.   In that year, computer systems design showed the sector’s strongest growth, a 14.3-percent increase of $4 billion.  While the legal services industry was twice as large as the computer systems design industry in 1997, computer systems design has since overtaken it, providing $7.4 billion more in services in 2010.

Continued losses in real estate were lighter than 2010’s

The bad news came in the form of more losses in the real estate, rental, and leasing sector.  This is California’s largest major sector, providing 15.3 percent of total state output.  In 2011, the industry suffered losses of $6.3 billion, a 2.3-percent decrease in output.  However, this was a significant improvement over 2010’s $16.7 billion loss.  The real estate subsector itself accounts for 90 percent of the sector as a whole and accounted for $18 billion of 2010’s decline, offsetting rental and leasing’s growth of $1.4 billion.  It would therefore come as no surprise if the majority of 2011’s loss is revealed to have come specifically from real estate.

Agriculture contracted markedly

Agriculture, forestry, fishing, and hunting output declined 14.2 percent in 2011, greater than 2010’s 1.3-percent loss, but a stark contrast against 2009’s 20-percent increase, indicating the industry’s relative volatility.

 Recession and Recovery

Since 2007 marks the last complete pre-recession year, comparing 2007 data to subsequent releases can provide invaluable insights into California’s performance following the onset of the ‘Great Recession.’  Further, comparing this data to that of other states can help put it in national perspective, giving some idea of California’s relative economic status.

Durable goods manufacturing has proved resilient

Manufacturing showed significant growth of $18.3 billion, or 8.9 percent, over the four-year period ranging from 2007 to 2011.  The credit goes entirely to the production of durable goods, which grew by $32.1 billion through the four-year period to offset $8.5 billion of losses in the production of non-durable goods.  Durable goods manufacturing had the fastest industry growth as well — totaling 26.3 percent from 2007 to 2011 — owing to a quick 15.4-percent rebound in 2010 and its strong 9.9-percent growth in 2011.

Health care and social assistance also performed well over the 2007 to 2011 four-year period, posting growth of almost $15 billion, or 15.5 percent.  The sector gained almost a full percentage point as a share of GDP over the four years, accounting for 6.4 percent of total state output in 2011.

Technology services showed sustained growth

Information services had strong gains of $13.5 billion, or  11 percent, over the four-year period.  The sector made up for a 6.1-percent loss in 2009 with two consecutive years of 7.4- and 7.5-percent growth in 2010 and 2011 respectively.  These sustained gains are a good prospect for one of California’s more important industries.

Another sector to show recent growth was professional, scientific, and technical services.  Following 9.5-percent losses in 2009, the sector bounced back with two consecutive years of 5.9- and 6.-2 percent growth.  This recovery resulted in output gains of over $12 billion, or 8 percent, over the 2007-2011 period.  Up to 2010, this growth was led by a 19.6-percent increase in output in the computer systems design and related services subsector.

In a still-weak housing market, the biggest losses appear to be over

Unsurprisingly for a state with a large real estate industry weathering a housing bubble collapse, California’s largest losses came from real estate and construction.  Total losses in the construction industry spanning 2007 to 2011 were approximately $24.4 billion, a marked 32.8-percent decline in industry output.  The majority of this reduction was concentrated in a 2008 loss of $10.8 billion and a 2009 loss of $11.2 billion.  These large contractions make the more recent 2010 loss of $2.7 billion and the modest 2011 gain of $357 million seem relatively bright.

In terms of gross loss, the real estate, rental, and leasing sector was not far behind, shrinking by $20.6 billion over the   2007-2011 four-year period.  Due to the relative size of the industry, this comes out to a 7.2-percent loss.  Year-over-year, the sector experienced a $7.9 billion increase in 2008, followed by three straight years of losses: $5.5 billion in 2009,     $16.7 billion in 2010, and $6.3 billion in 2011.  The relatively light loss in 2011 compared to 2010 could be the product of stabilizing home sales.

After a large decline, recent trade growth turned positive

The next biggest loss in terms of magnitude came from wholesale trade — a $10.4 billion decline over the four-year period.  The sector subsequently fell from 5.8 percent of GDP in 2007 to 5.3 percent in 2011.  This resulted mostly from a single year-over-year decrease of $15.3 billion in 2009, caused by the combined effects of the national and global economic slowdown.  Since then, however, the industry has showed solid year-over-year growth of $4.8 billion, or 5.8 percent, in 2010 and
$3.5 billion, or 4 percent, in 2011.

California has grown in the wake of 2009’s loss

California was hit harder than most states by the nation’s worst economic downturn since the Great Depression.  2009 was the worst year for California GDP.  The state’s total output dropped $82.8 billion, a 4.7-percent contraction, which was the largest single-year decline in a record dating back to 1987.  In 2009, with 43 of the 50 states showing overall declines in GDP, California was the state with the 13th greatest percentage losses.

After 2009, California started to recover, posting two years of steadily improving positive growth.  While its 2010 GDP increase of 1.7 percent left it in the bottom quarter of all states, 2011’s nearly 2-percent growth made California the tenth fastest growing of the state economies.


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