California and Florida feared to be in recession

California and Florida, two of the most important states in the US, are either in recession or on the brink of it, many economists now believe.

The two states together account for nearly two-fifths of US gross domestic product. California alone would rank among the world's top 10 economies, while Florida would rank in the top 20.

State-level data is patchy, but it suggests econ-omic activity is probably contracting in Florida and may be declining in California as well.

Technically, states do not have recessions; only national economies do. But the US has a long history of what are informally termed regional recessions.

California and Florida, along with Nevada and Arizona, represent a new group of housing boom-turned-bust states that could experience regional recession even if the US as a whole escapes with a period of very weak growth.

Their plight is likely to be a big issue in the presidential primary campaign.

Sales of existing homes fell 36 per cent in California and 30 per cent in Florida in the year to November 2007, while median sale prices fell 12 per cent in California and 10 per cent in Florida.

Both states have large inventories of unsold homes. California's high-cost property is particularly vulnerable to the continued dysfunction in the jumbo, or large-denomination, mortgage market.

Labour market data show that job creation stalled in both states from August onwards.

Ross DeVol, a member of the California Controller's Council of Economic Advisers, told the Financial Times he believes California is now in recession. Mr DeVol said the strike by Hollywood screenwriters, now in its third month, was the "straw that broke the camel's back".

However, the Federal Reserve beige book suggests that California was still growing at the turn of the year.

Bill Lockyer, California's Trea-surer, said: "I am not prepared to say with certainty the California economy is in a recession. But clearly we are in a period of broad-based deceleration."

Evidence for a recession in Florida is even stronger, with retail sales tax receipts - a proxy for consumer spending - down 5 per cent year on year in November.

John Robertson, senior economist at the Atlanta Fed, said: "All the indicators in Florida are consistent with an economy that is contracting, not growing."

The only pluses for both states are strong tourism and exports. The sharp fall in the dollar against the euro is helping Florida, but California has not seen much of a boost, because the dollar has not declined much against Asian currencies.