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 has 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 had the largest manufacturing industry in the U.S. in 2014, 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, but helped make up nine industries that turbo-charged the Golden State.
Professional and Business Services
Professional and business services was one of the most important industries in California in 2014, 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 were employment services and computer systems and design. Management, scientific and technical consulting services rounded out the business service sector. 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 represented 6.4% of 2014 gross state product, employing 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, and were, a major component of employment and output upon which California's economy relies.
The education and health services industry employed 2,455,100 people in California in 2014, representing 17.9% of the total private workforce. The largest subindustries by employment were physicians' offices, general medical and surgical hospitals, and individual and family social services. Outpatient care centers was the most rapidly expanding subcategory, growing 6.7% during the 12 months ending August 2015.
The financial activities industry was a major contributor to gross state product and a significant employer. Financial activities employed 5.9% of the private workforce and generated 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 contributed significantly to this disparity between employment and gross product.
The largest subcategory by employment was credit intermediation services; these services are related to consumer banking. The industry posted modest growth during the time period, as business activity was still recovering from the 2009 financial crisis.
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 employed 13.6% of the total private workforce and generated 4% of gross state product. The largest subcategories are accommodations, full-service restaurants and limited-service eating places.
The retail trade industry was driven by many of the same factors as leisure and hospitality, though the additional component of grocery and gasoline sales created a different dynamic. A larger proportion of retail activities was based on non-discretionary spending, and changing commodity and energy prices had substantial impacts on industry growth or contraction.
The retail trade employed 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.
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, although the Golden State is doing what they can to keep them there.
Manufacturing firms contributed 9.4% of total private employment and generated 10% of gross state product. 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, supported 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 employed 5% of California's private workforce and accounted 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.
California’s well-known technology sector included a strong information industry, which employed 3% of the total private workforce and generated 8% of gross state product. Software and Internet content providers were the largest elements of this industry, which did 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.
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 somewhat reduced agriculture's impact on the overall economy. The industry officially employed 3% of the private workforce and accounted for just 1% of gross state product. Protracted water shortages created significant challenges, providing irrigation necessary to sustain the agriculture industry that is becoming increasingly expensive.