California Economy Lags U.S. Turnaround But This Could Change

CALIFORNIA ECONOMY LAGS U.S. TURNAROUND BUT THIS COULD CHANGE IF HOUSING CONSTRUCTION CONTINUES TO REBOUND -  NEW HOUSING UP 25% FROM RECESSION LOW

A number of economic reports show that the U. S. Economy is pulling itself out of the Great Recession.  California’s unemployment rate was 12.4% in September, the third highest among states.  California continues to lose jobs, while layoffs have generally stopped in other states.  The exception is the Los Angeles coastal area which is adding new jobs faster than people are entering the workforce so unemployment is coming down.  In the San Francisco Bay Area, we have reached a point in which layoffs have stopped and there are enough new jobs to support new workers entering the workforce.   The Central Valley is the major problem area with continued layoffs.

Construction has been a major contributor to lost jobs.  In the twelve months leading up to September 2010, construction lost 51,000 construction workers, an 8.8% decline.  Over that same period, the nation experienced only a 3.6% decline in construction jobs. 

However, housing has finally hit bottom in many California communities and especially along the coastal areas.  The clearest evidence that an uptrend is brewing in housing comes from residential building permits data.  Beginning in January for nine consecutive months, permits in California were higher this year than in the comparable month of 2009.  From January through September, permits this year have increased 25% from their recessionary low.  This means that the housing sector has finally turned the corner to positive growth rather than rapid decline that occurred throughout the recession.  Inventories of unsold homes are now running only 5 to 7 months which is considerably improved from last year.  The number of foreclosures is declining.  With all of these housing statistics pointed in the right direction, California homebuilders are poised to build more houses in 2011.  New housing is going to be stronger in the coastal areas.     

Keep in mind that housing fell to only 36,000 units in the current year, or about 3,000 new homes built statewide per month, which is considerably below the 175,000 to 200,000 new homes per year during California’s normal economic times.  So, the 25% growth is only indicating that housing is starting to pull out of the recession, which is good news indeed, but the state has a very long way to go to get housing back to normal levels.   

The gradually improving housing sector in California will help to advance California’s economy and consumer confidence.  Up until now, residential construction has been a drag on the economy, but this is about to change.

California’s manufacturing sector matches the national economy.  California’s largest manufacturing businesses are the same as 98% of the nation’s largest manufacturing activities.  This means that California’s manufacturing activity will recover at the same pace as the nation.

California is the eighth largest economy in the world (if it were measured as a separate nation).  However, the state has been losing employment to other states for twenty years.  California’s business climate is viewed as less attractive than others states.  Businesses cite taxes, regulations, infrastructure, and education as the primary criteria used in deciding business locations.   This is not helpful to California’s efforts to reduce unemployment.   The other impact is that California used to have the 4th highest per capital personal income among states from 1929 through 1989.  Since then, we have slipped to 10th place.  “Leading economists believe that the most important action that the new Governor can take is to solve our short- and long-term State Budget problems.  Given the on-going mismatch between spending and revenues, individuals and businesses alike can only guess what sort of government services and taxes they can expect over the medium term,” said BRUCE WOOLPERT.