Keitaro Matsuda, senior economist at San Francisco-based Union Bank of California NA, says the state is enjoying "a near-perfect balance" between the depressed Bay Area in the north and deceptively strong regional economies in the central and southern parts of the state. The combination, he adds, could help the entire state stay afloat as most other parts of the US sink into recession.

Matsuda acknowledges that the San Francisco Bay area and the Silicon Valley are still suffering from the dot-com bust. But he says those negative conditions are being offset by a general upward trend in job growth and housing prices in the Central Valley and the Southland.

The economist notes that a recent study found that the Central Valley cities of Modesto and Stockton had the highest home-price appreciation in the country, each with gains of more than 20%. "This is further evidence that the prosperity in the coastal area is finally spreading to the Central Valley," Matsuda writes in his most recent economic report.