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Wells Fargo says California's economy "in flux" next year

December 1, 2011 | 12:19 pm

Wells Fargo says California's economy could stumble if the nation slips into a double-dip recession.
California's economy could stumble next year if the nation slips into a double-dip recession, Wells Fargo Securities warned in a regional economic analysis.

"The downside risks are easy to list," said senior economist Scott Anderson in a note Thursday. "Slower growth in Asia and a stronger dollar will hurt California exports and tech demand.

"A foreclosure and distressed sales backlog and continued weak demand for housing will keep home prices declining, intensifying financial pressure on California consumers at a time when equity prices could also be moving lower."

And those are just part of the Golden State's problems.

The state government could be hit with another round of deep budget cuts because tax revenue is trending $3.7 billion below forecasts for the 2011-2012 fiscal year that ends on June 30, Anderson said.

New cuts, which would be triggered automatically, might range from $600 million to $2 billion.

"For now, we withhold judgment on the California recession question and continue to forecast net job creation in California," Anderson said, "though it is likely to be fewer jobs created than this year, and the pace of job growth in California could slip somewhat below the national average."

The impending budget cuts also could play havoc with local government and school district finances, Moody's Investors Service said in a separate report on the California economy released Thursday.

"The mid-year cuts are all but certain, and the state continues to defer a substantial portion of districts' cash funding from one year to the next," Moody's said. "This creates liquidity and budget challenges for most districts."

Related:

Home prices dip in September 

California demographic shift:More people leaving than moving in 

California farms are looking greener than ever

 -- Marc Lifsher

Photo: Wells Fargo Bank in Charlotte, N.C. as the last sign for former Wachovia Bank is removed in October.

Credit: Chris Keane / Reuters

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