Keitaro Matsuda, senior economist at San Francisco-based UnionBank of California NA, says the state is enjoying "a near-perfectbalance" between the depressed Bay Area in the north anddeceptively strong regional economies in the central and southernparts of the state. The combination, he adds, could help the entirestate stay afloat as most other parts of the US sink intorecession.

Matsuda acknowledges that the San Francisco Bay area and theSilicon Valley are still suffering from the dot-com bust. But hesays those negative conditions are being offset by a general upwardtrend in job growth and housing prices in the Central Valley andthe Southland.

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