In early 2008, the combination of a housing market correction, soaring oil prices, a weak labor market, overextended consumers and stressed credit markets spell recession, according to this report from the Milken Institute's California Center.
The analysis shows real GDP declining at an annual rate of 0.6 percent in the first quarter of 2008, followed by 0.9 percent in the second. The study states that the Commerce Department's "advance" report on first-quarter 2008 GDP will be revised to show a decline rather than the 0.6 percent gain currently estimated.
The report also looks at what the national recession means for California. The impact on California will be more pronounced than in other states because of the high concentration of mortgage originations (both traditional and subprime), targeted job losses in the construction and financial services sectors, and decreased import activity in the state's ports and logistics operations.
California's economic issues will have a direct impact on the budget. According to the report, at the current rate of expenditures, the 2007-2008 general fund would be $9.7 billion in deficit, and at the current growth rate of expenditures, the gap between general fund revenue versus expenditures for the 2008-2009 fiscal year could reach $20.2 billion.