The U.S. and California economies are nearly one year into a recession that was initially caused by such factors as sharp declines in spending by businesses on capital goods, and then aggravated by the September 11 terrorist attacks. The downturn has been mild so far in terms of employment, although more severe in terms of income losses. Our forecast is that the recession will conclude in the next couple of months and that a sustained expansion will begin before mid-year. While employment will recoup its losses by the end of 2002, the decline in income related to stock options will be longer lasting. Our outlook is predicated on (1) a rebound in high-tech spending in the second half of the year and (2) the absence of significant terrorism-related disruptions to the national or state economies.