California responsible for 13 pct of total US output Monday, June 04, 2001 06:27 PM ET

By Jonathan Nicholson WASHINGTON, June 4 (Reuters) - A new report by the government shows California makes up about one-eighth of U.S. economic output, a proportion that may be worrying U.S. policymakers as they assess the effects of the state's energy crisis.

The Commerce Department said California's gross state product - the tally of goods and services produced by labor and property located in the state - was 13.2 percent of national output in 1999, the latest year for which data are available.

That was well above the share of national economic output provided by the next largest state economies, New York, at 8.1 percent, and Texas, at 7.4 percent.

For the seven years ranging from 1992 to 1999, California grew at a 3.9 percent annual rate, well below the pace seen in its neighboring Western states.

California's rate of growth was a bit better, however, than the 3.7 percent gain in national gross domestic product seen annually in the same period.

The Golden State's pace of growth likely slipped in recent months under the crushing weight of a spike in electrical prices stemming from the state's attempt at deregulation.

While Gov. Gray Davis and the Bush Administration disagree over the need for wholesale level power price caps, officials are becoming increasingly edgy that the combination of the drag on spending from increased energy costs, as well as rolling blackouts, could tip the state's $1.229 trillion economy into recession.

GREENSPAN SAYS CALIFORNIA A CONCERN

In introductory remarks delivered via satellite to a central bankers conference in Singapore on Sunday night, Federal Reserve Chairman Alan Greenspan noted that the effect of rising electricity prices on the California economy had been "modest" to date.

"But no state or area of the United States has experienced the supply-demand imbalance in electric power that currently confronts Californians. This imbalance should only be a problem in the short-run, but it is, nonetheless, a concern for the national economic outlook," Greenspan said.

And in a May 30 speech in San Antonio, Robert McTeer, the blunt-speaking president of the Federal Reserve Bank of Dallas and a non-voting member of the Fed's rate-setting Open Market Committee, said he thought a recession in California due to energy prices was "possible."

While California's economy was the biggest, it posted only a middling performance for the years 1992 through 1999. Other Western states, including Nevada, Oregon and Washington all grew at a faster pace than it did during the period.

Arizona, at a 7.3 percent annual rate of growth, topped all other states.

The weakest growth was posted by Hawaii, which was the only state to post a negative average annual growth rate, contracting at a 0.3 percent yearly pace. Alaska had the next slowest growth, eking out a 0.5 percent average annual increase.

Copyright 2001 Reuters Limited.

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