In PPIC’s November survey, 69% of Californians said they expect bad economic times in the next year. Their longer-term outlook is not much better: 62% expect periods of depression or unemployment over the next five years. While the job market is strong and inflation has started to slow, Californians’ increasingly negative perceptions about the economy could foretell a downturn. And even if California skirts a recession, high prices and growing inequality nevertheless threaten Californians’ sense of economic security, especially for low-income residents.

California’s economy looks strong on many measures. The state has recovered the 2.7 million jobs lost during the pandemic, and then some. California jobs are growing at a faster pace than in the US overall. Unemployment is lower now than before the pandemic started. And wages are up, on average, 15% as of October 2022 compared to October 2019.

The biggest economic threat is continued inflation. While December consumer data marked six straight months of slowing inflation, prices have not yet abated enough. Until that happens, the Federal Reserve will likely continue to take steps to slow the economy, increasing the risk of a recession. At this point in time, a wide range of outcomes are possible, from no recession to a substantial downturn; given the strength of our current job market, the latter would likely only occur if new global threats emerge (e.g., events affecting the war in Ukraine or the volatility of the energy sector).

Nearly all Californians (97%) are concerned about the rate of inflation, according to our November survey. Notably, price increases worsen the challenges that low-income Californians face in meeting their basic needs. Despite good news about jobs and wages in 2022, over the long run, income growth among top earners has dwarfed that of the lowest earners. Driven by increased global trade, technological advancements that have favored more-educated workers, and systemic barriers, top incomes have grown 60% over the last 40 years (reaching $270,000 for families at the 90th percentile in 2020). Meanwhile, bottom incomes have suffered several large downward swings, only increasing about 10% ($25,000 at the 10th percentile).

Indeed, we see a big divide in how Californians feel about their finances. Overall, 44% of Californians in our November survey say they would have at least some difficulty paying for an emergency expense of $1,000. While 24% of those earning $80,000 or more say that they would have at least some difficulty, this percentage grows to 67% for those earning between $20,000 and $40,000. Among those earning less than $20,000, 88% say that they would have difficulty handling an emergency expense.

Latinos and African Americans are far more likely than Asian Americans and whites to say they would have difficulty handling an emergency expense; Californians without a college degree, women, and parents are also more likely to express difficulty. Regionally, we find that residents in the Inland Empire and the Central Valley (51% each) are more likely to say that they would experience at least some difficulty covering an emergency expense, compared to residents elsewhere (44% Orange/San Diego, 43% Los Angeles, 37% San Francisco Bay Area).

Notably, among lower-income Californians, differences also emerge—and these differences replicate the educational and racial patterns seen among all adults. Among Californians making less than $40,000, Latinos, those without a college degree, and parents with children in the home are more concerned about emergency expenses than whites, college graduates, and families without children at home, respectively. Regional differences also persist. Among lower-income Californians, residents in Orange/San Diego (81%), the Central Valley (79%), and the Inland Empire (79%) are the most likely to say this expense would be at least somewhat difficult to cover (75% Los Angeles, 70% San Francisco Bay Area).

These patterns of economic vulnerability reflect persistent disparities in access to opportunity as well as the ways in which globalization and technology have affected the job market over time. Today’s economic transformations—which include advancements in AI and other technology, shifts in remote work, and major investments in infrastructure, economic development, and climate change—also have the power to reshape economic well-being in California. Whether these changes widen or narrow disparities in opportunity depends on how well California can set up its businesses, workforce, and communities for the future. Strengthening the ecosystem that enables businesses to create jobs—and that helps more Californians prepare for and access jobs—is an essential piece of the puzzle. PPIC will continue to track and inform how California might strengthen its economic foundations and eliminate barriers to economic opportunity, seeking to open up the California Dream for more residents across the state’s diverse communities.