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8.A. - Page 10 of 72 the waning economic boost from the tax cuts and the pain of trade wars inflicted, in particular, on the manufacturing sector, farmers, technology companies and retailers. Businesses see lower demand in the "global picture" because of the trade wars, which can cause uncertainty. The speculation regarding the trade wars and the potential next moves generate concerns regarding the costs of continuing to do business with countries imposing large tariffs on exports to the US and on the US imposing tariffs on goods imported from other countries. Economists have estimated that the costs of additional taxes paid on imported goods costs businesses and consumers approximately $3 billion per month. There are no clear-cut answers regarding these obstacles but, ultimately, economists agree that depressed demand for goods is a likely result of the trade wars. State The Legislative Analyst's Office (LAO) of the State of California annually prepares the State Fiscal Health Index (Index) to track the strength of the economic indicators relevant to the State's fiscal health. This index combines ten key data points: home prices, home sales, residential and commercial building permits, venture capital funding, unemployment insurance claims, CalFresh claims (formerly known as Food Stamps), port traffic, new car sales, and the S&P 500 stock market index. With the exception of the last indicator, all of the data is specific to California. The Index will indicate the strength of the state's economic conditions relevant to the state's fiscal health. When the Index is high, revenues tend to be high compared to historical norms. When the Index is increasing, state revenues are likely to continue to increase over the next six to twelve months. Conversely, when it is decreasing over several months, typically, this has signaled that the state is entering an extended period of revenue weakness. As of November 2019, the Index remained high, at 95 percent. This result is higher than 95 percent of the months in the historical record. However, it has been declining since April 2019. Notably, a decline of this length has not been observed since the Great Recession. Several factors are leading to the weakening of the Index: stagnant housing markets, slowdown in port activity due to the slowdown in trade activity, slowdown in new car sales, and reduced venture capital investment activity. Even so, California's economic growth is the strongest in the nation and the fifth largest in the world. As with the rest of the nation, California's unemployment rate has continued to fall, averaging a record low of 3.9 percent in November 2019. At the same time, California personal income is projected to grow at around 4 percent per year. Governor Newsom's proposed 2020-21 State budget continues to grow the Rainy Day Fund, with a projected balance of $18 billion in 2020-21. Lastly, initiatives related to homelessness, health care, and education will be funded through a $5.6 billion surplus. Several factors such as the low unemployment rate and the robust growth in the stock markets, signal continuing economic expansion. These factors are providing a somewhat mixed message regarding the condition of California's economy. According to the LAO, while not imminent, the risk of a slowdown, but not necessarily a recession, in the coming year appears higher than it has been for some time. Local The regional economy (San Francisco Bay Area) is very robust. According to the California Employment Development Department, as of December 2019, the preliminary unemployment rate in San Francisco - Page 10 of 26 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 245