California leads the 50 states in economic output and total personal income. In the 1960s, when it became the nation's most populous state, California also surpassed Iowa in agricultural production and New York in value added by manufacturing.
The gold rush of the mid-19th century made mining (which employed more people than any other industry in the state until 1870) the principal economic activity and gave impetus to agriculture and manufacturing. Many unsuccessful miners took up farming or went to work for the big cattle ranches and wheat growers. In the 1870s, California became the most important cattle-raising state and the 2nd-leading wheat producer. Agriculture soon expanded into truck farming and citrus production, while new manufacturing industries began to produce ships, metal products, lumber, leather, cloth, refined sugar, flour, and other processed foods. Manufacturing outstripped both mining and agriculture to produce goods valued at $258 million by 1900, and 10 times that by 1925. Thanks to a rapidly growing work force, industrial output continued to expand during and after both world wars, while massive irrigation projects enabled farmers to make full use of the state's rich soil and favorable climate.
By the late 1970s, one of every four California workers was employed in high-technology industry. California has long ranked 1st among the states in defense procurement, and in 1997, defense contracts awarded to southern California firms surpassed the combined totals of New York and Texas.
From its beginnings in the late 18th century, California's wine industry has grown to encompass some 500 wineries. In 1981, they accounted for about 90% of total US production. By 1985, California had surpassed Chicago to rank 2nd in advertising among the states.
A highly diversified economy made California less vulnerable to the national recession of the early 1980s than most other states. During the first half of the 1980s, the state generally outperformed the national economy. In 1984, California enjoyed an estimated increase of 12.1% in personal income and a 6.1% increase in nonagricultural employment, and reduced the unemployment rate from 9.7% to an estimated 7.8%. The boom was short-lived, however. Cuts in the military budget in the late 1980s, a decline in Japanese investment, and the national recession in the early 1990s had a devastating impact on the state, particularly on southern California. Unemployment in 1992 rose to 9.1%, up from 5.1% in 1989. The aerospace and construction industries suffered disproportionately. Employment in aerospace declined 22.3% between May of 1990 and September of 1992; construction lost 20% of its jobs in the same period.
Stock market growth in the high-technology sector led California's growth during the late 1990s. The gross state product in 1997 was approximately one trillion. Annual growth rates in 1998 and 1999 averaged 7.75 in 1998 and 1999, and soared to 9.6% in 2000. The national recession of 2002, however, brought the growth rate down to 2.2%. While employment in southern California continued to expand, the San Francisco Bay area, severely impacted by the decline in the high-tech manufacturing and software sectors, the bursting of the dot.com bubble on the stock market, and the collapse of the venture capital market, experienced its worst recession in 50 years. In 2002, recovery remained elusive, and in 2003, the state faced a projected $38 billion budget deficit that was the main issue in an unprecedented campaign to the recall the governor.
Total gross state product in 2001 was $1.36 trillion in 2001, 11.2% from the public sector. The main contributions to gross state product were general services ($326 billion, up 36% from 1997); financial services, including insurance and real estate ($317.5 billion, up 37% from 1997); manufacturing ($163.8 billion, up 11.2% from 1997, but down 12.4% from its peak in 2000); government ($152 billion, up 27.7% from 1997); and transportation and public utilities ($92.4 billion, up 25% from 1997). California continued to have the highest gross state product among the 50 states, accounting for 13.4% of the total.