The California economy is expanding at a healthy pace in early 2005, as evidenced by real estate construction, exports, company reports of sales and profits, and business-related tax receipts. The one area of concern remains jobs, which are lagging due to intense focus on cost cutting and efficiencies. We project the California economic expansion to continue at a moderate pace, with personal income expanding by roughly 5.6 percent and jobs growing 1.5 percent annually during the next two years.