By William Selway - Jun 1, 2010

California’s economy, the eighth- largest in the world, may grow faster than the rest of the U.S. as soon as next year, according to Comerica Inc. chief economist Dana Johnson.

In previous recoveries, California’s unemployment rate fell compared with the national average as the state added jobs at a quicker pace than the rest of the U.S., Johnson wrote in a research note to clients today. California’s housing market is also showing signs of improving as prices rise, foreclosures fall and the issuance of residential building permits outpaces the nation, he wrote.

“Historical patterns suggest that California could start outperforming the nation in 2011, particularly if it can get its budget problems under control,” Johnson wrote. “The important takeaway is that California tends to be more cyclically sensitive than the national economy, suffering more in downturns but growing more rapidly during expansions.”

Republican Governor Arnold Schwarzenegger and the Democrat- led Legislature disagree on ways to close a $19 billion budget deficit for the fiscal year that begins July 1. Beset by revenue declines brought on by the recession, Schwarzenegger proposed deeper spending cuts, including eliminating the main welfare program for the poor. Democrats have backed tax increases.

California had a $1.8 trillion economy in 2008, according to the U.S. Commerce Department, which would rank it behind Italy as the eighth largest in the world. Its unemployment rate in April was 12.6 percent, the third-highest after Michigan and Nevada, while the national average was 9.9 percent.

“So far the national recovery as well as the upturn in California has been led mainly by a rebound in manufacturing, as household spending, business fixed investment, and exports have all been trending higher,” Johnson wrote.

“With California further along in rebalancing its housing sector than the nation, the odds are growing that later this year or early in 2011, the state will get a bigger boost from homebuilding and could begin outperforming national trends.”