California is an economic engine. Why do its residents suffer the most from high interest rates?

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Good morning. It’s Monday, July 15. Here’s what you need to know to start your day. I’m Shelby Grad, deputy managing editor for news.

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Californians experiencing severe sticker shock

California’s economic engine continues to amaze, with state officials hailing its status as the world’s fifth-largest economy. Still, there have been some rough spots:

But one pain point has gotten less attention: high interest rates. Times reporters Andrea Chang and Don Lee talked to people across the state about how interest rates are hurting their pocketbooks, business plans and, in some cases, forcing them to delay planned purchases and expansions.

Like with so many other things, Chang and Lee reported, California’s lack of affordability makes things worse.

“The cost of borrowing, whether for mortgages, credit cards or car loans, is the highest in more than two decades. And that is weighing especially hard on people in California, where housing, gas and many other things are more expensive than in most other states,” they wrote.

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“California’s economy also relies more on interest-rate-sensitive sectors such as real estate and high tech, which helps explain why the state has been lagging in job growth and its unemployment rate is the highest in the nation.”

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By many measures, the California economy remains the envy of the world. But for most consumers, the Golden State sticker shock is getting harder to bear.

And it’s hardest for lower-wage Californians, according to a study by the Policy Institute of California:

In 2018–19, basic household necessities cost California’s low-income households about $26,000, on average. In 2024, these households would need to spend more than $32,000 on the same goods and services. By comparison, the top income group spent on average $82,000 on these basics in 2018–19, which would now cost nearly $100,000 in 2024.

These issues are already hurting President Biden in the polls. But two Californians often listed as possible replacements should Biden halt his reelection bid will have to address them too.

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