California is the largest state economy in the United States, with a total private workforce of 13.7 million and gross state product of $2.3 trillion in 2014. California as a diversified economy, though it is especially well-known for its technology, entertainment and agriculture industries. Some of the world’s largest companies are headquartered in the state, including Chevron, Apple, Hewlett-Packard, Intel, Google, Facebook, McKesson Corporation and Wells Fargo & Company.

California has the largest manufacturing industry in the U.S., though the industry is currently experiencing significant upheaval. Traditional activities are relocating to cheaper areas, though demand for highly skilled and technology-intensive manufacturing processes is growing rapidly due to technology sector concentration in the state. Similar to other states, health services and retail trade are substantial contributors to employment and are largely driven by non-discretionary consumer spending.

Professional and Business Services

Professional and business services is one of the most important industries in California, employing 18% of the total private workforce and contributing 13% of gross state product. The industry grew 5.5% during the 12 months that ended in August 2015. This was the second-highest growth behind construction, and this strong performance is attributed to a generally improving economic environment.

The largest subindustries are employment services, computer systems and design, and management, scientific and technical consulting services. The employment services industry grew 7.4% in the 12 months ending in August 2015 as businesses continue to hire amid improving outlook. Professional and business services will generally expand and contract in line with the wider economy, though demand for these services in California is disproportionately correlated to the technology, manufacturing and entertainment industries.

Educational and Health Services

Educational and health services comprise another industry that contributes substantially to California's economy. Educational and health services represents 6.4% of 2014 gross state product and employs 18% of the total private workforce. Because a significant portion of health care spending is considered non-discretionary, it is rare for demand for these services to grow or deteriorate rapidly. Nonetheless, these activities are a major component of employment and output upon which California's economy relies.

The education and health services industry employs 2,455,100 people in California, representing 17.9% of the total private workforce. The largest subindustries by employment are physicians' offices, general medical and surgical hospitals, and individual and family social services. Outpatient care centers are the most rapidly expanding subcategory, growing 6.7% during the 12 months ending August 2015.

Financial Activities

The financial activities industry is a major contributor to gross state product and a significant employer. Financial activities employs 5.9% of the private workforce and generates 19% of state domestic product. Output in the finance industry is frequently disproportionate to employment because such a large percentage of the industry is enterprise facing, meaning the transactions tend to be vastly larger than consumer transactions. Real estate activities, both residential and commercial, also contribute significantly to this disparity between employment and gross product.

The largest subcategory by employment is credit intermediation services; these services are related to consumer banking. The industry has posted modest growth in recent years, as business activity is still recovering from the 2009 financial crisis. The real estate market in California is also trending positively, with 4 to 5% growth expected in sales volume and median price in 2015 and 2016.

Leisure and Hospitality

The leisure and hospitality sector in California supports a significant tourism industry and provides services to a relatively wealthy population benefiting from productive industries. Leisure and hospitality companies employ 13.6% of the total private workforce and generate 4% of gross state product. The industry is growing just over 4% annually due to improving consumer sentiment and growing disposable income. The largest subcategories are accommodations, full-service restaurants and limited-service eating places.

Retail Trade

The retail trade industry is driven by many of the same factors as leisure and hospitality, though the additional component of grocery and gasoline sales creates a different dynamic. A larger proportion of retail activities is based on non-discretionary spending, and changing commodity and energy prices can have substantial impacts on industry growth or contraction.

The retail trade employs 12.1% of the state's private sector employment and generated 6% of gross state product in 2014. Grocery stores were the largest subcategory, while general merchandise stores followed closely behind. Motor vehicle and parts dealers grew 4.9%, making it the fastest-growing subcategory of note. This performance is attributed to improving overall economic conditions.

Manufacturing

California's manufacturing industry has traditionally been very strong, and it currently has the largest manufacturing output in the U.S. However, high costs of doing business are incentivizing many firms to locate their manufacturing activities elsewhere. These companies are relocating abroad or to other areas within the U.S., such as the Southeast and Midwest.

Manufacturing firms contributed 9.4% of total private employment and generated 10% of gross state product. Expansion in the industry tends to be spurred by highly skilled processes. Electronic computer manufacturing was one of the faster-growing subindustries, notching 7.3% growth year over year. Continued strength from technology firms, especially in the San Francisco Bay area, supports electronics manufacturing demand. Nonmetallic mineral product manufacturing was another high-growth segment, expanding 7.8% into June 2015. This subcategory produces glass, clay, lime and cement, and it is correlated to construction growth.

Construction

Construction employs 5% of California's private workforce and accounts for 3% of gross state product. The construction industry was severely affected by the 2009 recession, as real estate inventory overhangs led to a rapid decrease in construction demand. California's fiscal difficulties have also threatened demand, as plans for civil projects are jeopardized or pared back.

In recent years of economic recovery, construction has become the fastest-growing industry in California. Nonresidential building construction grew 14% in the year ending in August 2015, while the building finishing subcategory grew 10.4% and the building equipment contractors subcategory grew 9.6%. Construction demand has been disproportionately driven by commercial building, though the realtor outlook for residential housing demand is positive.

Information

California’s well-known technology sector includes a strong information industry, which employs 3% of the total private workforce and generates 8% of gross state product. Software and Internet content are the largest elements of this industry, which does not include technology firms involved in the design and manufacture of electronics, personal computers, and network and storage hardware.

Well-known giants such as Google and Facebook are headquartered in California, and the San Francisco Bay area also supports a large startup community. As automation and technology continue to become increasingly important to everyday personal and business functions, California's agglomeration of information technology services will help to support a growing industry.

Farming

California is a major exporter of agricultural products, and is the U.S.' largest producer of fruits, vegetables, wine and nuts. While the industry continues to play a prominent role, especially in certain parts of California, growth in other categories is reducing agriculture's impact on the overall economy. The industry officially employs 3% of the private workforce and accounts for just 1% of gross state product. Protracted water shortages have created significant challenges, and providing irrigation necessary to sustain the agriculture industry are becoming increasingly expensive.

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