California Economy Begins Modest Upturn; Uncertainty High

California’s economy saw few positive signs during the past quarter, according to the latest report of the California Chamber of Commerce Economic Advisory Council (EAC).

The state lost an estimated 1.4 million farm and non-farm jobs during 2008 and 2009, reported the council, chaired by Nancy Sidhu, vice president and chief economist for the Los Angeles County Economic Development Corporation.

Modest Upturn
The upturn to date this year has been modest at best, according to the council. Some 90,300 new jobs appeared between December 2009 and May 2010, but 97,200 jobs disappeared between May and September, leaving a net loss of -6,900 jobs over the first nine months of the year.
Most of the losses were government jobs, as the federal government slashed its Census 2010 workforce and school districts and cities reduced headcount.

Meanwhile, California’s unemployment rate continued at 12.4 percent during the third quarter, compared with 12 percent a year earlier. Joblessness has been at or above 12 percent since August 2009; these rates were the highest since before World War II.

Other Indicators
Other broad-based indicators paint a somewhat less gloomy picture. Personal income earned in California increased by 2.3 percent during the second quarter of this year compared to the second quarter of 2009 (latest data available). A moderate increase, this marked only the second uptick in personal income since the third quarter of 2008.

Problems in the state’s construction, state/local government, and finance/real estate sectors accounted for much of the drag on the state’s earnings growth. On the plus side, personal income increased in farming, mining, health care and private education.

Taxable sales sagged during the recession, plunging by -15 percent during 2009. Here too, however, the year-to-year comparisons turned positive during the first and second quarters of 2010, another sign of progress.

Although data are still incomplete, sales declines during the recession were most severe for California’s motor vehicle dealers, furniture stores and building materials dealers. Automotive has led the 2010 upturn to date, however, with unit sales through July up nearly 20 percent over the first seven months of 2009.

Tax Receipts
Reflecting the changing economic momentum, tax receipts came into the General Fund a little better than expected during the early part of fiscal year 2011 (which ends June 2011).

However, the budget gap for the fiscal year was estimated at $18 billion-$19 billion. It took 100 days of intermittent discussions in Sacramento to find—and accept—the least painful ways to close the gap, a record for such late performance. Many of the “solutions” involved one-time fixes or unrealistic assumptions.

Thus, the budget gap for fiscal year 2012 may well exceed $20 billion. Some caution about the budget situation seems to be warranted.

Job Loss
While employment may be near bottom in California, the state still lost a total of –62,100 non-farm jobs over the 12 months to September, with key industries still reporting negative results.

Job counts fell the most in California’s construction, government, wholesale trade, manufacturing and retail trade sectors.

International Trade
International trade has picked up very strongly in 2010. Exports of goods made in California jumped by +19.7 percent in the third quarter of 2010 compared with the third quarter of 2009.

The largest category of exports—computers and electronic products (semiconductors, computer equipment and navigational instruments)—rose by +25.6 percent.

Exports of California’s second largest export products—industrial machinery—leapt by +47.3 percent, the biggest gain of the top five export product groups.

Meanwhile, exports of transportation equipment climbed by +10.2 percent versus the same quarter last year, and exports of miscellaneous manufactured commodities (including medical equipment and supplies) rose by +22.5 percent. Exports of chemicals (including pharmaceuticals) advanced by +5.6 percent.

Risks
Risks appear to be about even, although the downside issues certainly receive more attention. The economy has passed the bottom of a serious, lengthy recession, but the level of activity is still low.

Some observers still are unconvinced about the recovery’s staying power. Among others, uncertainty is high because they do not know yet what the rest of the recovery will look like.

Source: California Chamber of Commerce
December 22, 2010

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