Economy often chilled by bear markets

The stock market is officially in a bear market downturn, and that's rarely good news for California's economy.

Using the definition of a bear market as a 20% drop in the S&P 500 stock index, my trusty spreadsheet looked at what followed the start of the five such Wall Street downturns before the pandemic.

To gauge the fallout, I looked at California's economy in terms of the 12-month change in unemployment, jobs, total statewide personal income, home prices (FHFA index) and 30-year mortgage rates.

The trend

Wall Street's latest bear market officially started in January. In the past, California's economy typically reacted lethargically, at best.

In the year following these five deep market dives, California's unemployment rose on average to 7.6% from 6.1%. Meanwhile, growth cooled for jobs (to 0.2% from 2.1%), income (2.1% from 7.7%) and home prices (0.9% from 5.1%).

With a backdrop of weakness spreading from Wall Street as far as Pacific Coast Highway, borrowing costs fell. Mortgage rates dipped on average by 1.3 percentage points in a year.

The dissection

Ponder these five bear markets and how they played out in California.

NOVEMBER 1980-AUGUST 1982,

27% STOCK LOSSES » Geopolitical turmoil, notably an Arab oil embargo, a change in presidents (from Jimmy Carter to Ronald Reagan), and inflation-bashing double-digit interest rates sent stocks into a dive. Wall Street's pain certainly foreshadowed brewing economic distress in California.

A year after this bear market started, California unemployment rose to 11% from 8.2% as the jobs count morphed from 0.7% growth to a 2.2% decline. Statewide income growth went from 9.9% to a near standstill at 0.7%.

Home prices that at this bear market's start were rising 8.4% shifted to a 1.4% loss 12 months later. And that fall came despite mortgage rates falling to 14% from 17.7%.

AUGUST 1987-DECEMBER 1987, 34%

STOCK LOSSES » The rebound out of the dark days of the early 1980s ended abruptly seven years later, highlighted by the Black Monday stock crash in October.

Curiously, the California economy was largely spared any fallout in the year after this bear market started.

Unemployment fell to 5.3% from 5.6% as job growth quickened to 3.8% from 3.4%. Income growth did cool — 3.4% from