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California economic forecasters predict a slow and uneven recovery

by Greg Lucas, published

Economic indicators and recent forecasts say that the worst of the recession is over for California, but the recovery from its ravages will take years and occur at differing speeds throughout the state. 

Three recent forecasts predict that while California has hit bottom and is coming back, unemployment will remain at or above 12 percent for the remainder of 2010 and double digits through 2011.  “The patient was extremely sick and in intensive care but he’s stabilized and in a very slow and challenging recovery,” Jack Kyser of the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp. told the Los Angeles Times in July. 

During the recession, California was hit harder than the nation overall. Housing prices fell farther and the state’s unemployment rate remains more than two points about the national level. 

California’s economy has a direct – and dramatic – impact on the state budget. Fewer Californians working means fewer state income taxes are collected, fewer taxable sales occur, and as a consequence, less revenue comes to the state to cover its costs. Reduced home values and foreclosures have also driven down property tax receipts. 

For example, California’s personal income declined in 2009 for the first time since 1938, according to the state Department of Finance. Taxable sales in 2009 were down 15 percent over 2008. 

At the same, in periods of economic downturn, state costs increase as more Californians use programs like welfare, unemployment insurance, and Medi-Cal, the state’s health care program for the poor. 

Kyser and the Business Forecasting Center at the University of the Pacific in Stockton both predict California will not experience a “double-dip,” or second round of recession. 

     “At mid 2010, California’s economy appears to be moving up from the depths of the recession. Employment seems to have stabilized. Only a few industries are growing at present but more than were growing six months ago. The economic news in California will get better during 2010 but slowly,” says Kyser’s Outlook for the California Economy. 

In their July forecasts, Kyser and the University of Pacific echo a June report by the University of California Los Angeles Anderson Forecast, which said unemployment would remain above 12 percent for the remainder of 2010.  “Unlike other deep recessions, the rapidity of the recovery, at least on the unemployment front, will be muted,” said UCLA Anderson Senior Economist Jerry Nickelsburg. 

In June, the state Department of Finance issued a report with the headline, “Signs Emerge That Worst May Be Over.”  The first paragraph says: 

     “A resurgent labor force is one of several signs that the economy is slowly getting back on its feet. A resumption of job gains contributed to the perception that a sustainable recovery is underway, which, in turn, pulled discouraged people back into the labor market. 

     “Building activity, both residential and nonresidential, appears to have stabilized and, while still at low levels, has improved modestly from the beginning of 2009.” 

Among the positive economic signs appearing in the various forecasts and reports: 

*June marked the third consecutive month California’s unemployment rate fell. It was 12.6 percent in April. As of June 30, it stood at 12.3 percent. The state Employment Development Department is scheduled to release the unemployment for July on August 20. 

*California exports during the first six months of this year were $68.5 billion – a 22 percent increase over the $56.4 billion during the same period last year. 

*The number of homes starting the foreclosure process through a “notice of default,” fell between April and June to the lowest level in three years, the fifth consecutive quarter of decline.  During the first three months of 2010, 70,000 notices of default were filed, down 14 percent from 81,054 filed during the first quarter of 2009 and down nearly 44 percent from the 124,562 filed during the second quarter of 2009, according to real estate information service MDA DataQuick. 

*For the first half of 2010, 21,149 housing construction permits were pulled, up 17 percent compared to the same period in 2009. In June 2010, 4,238 permits were issued, up 19 percent from June 2009 and up 34 percent from May 2010, according to statistics compiled by the Construction Industry Research Bureau.  “This is welcome news,” said Liz Snow, the California Building Industry Association’s president. “(But) we’re still hovering round the record-low production levels of the past two years.”  As the University of the Pacific forecast notes, construction has been most battered by the recession, having already lost 390,000 jobs with an additional 10,000 more losses predicted by the end of the year. 

*Sales of existing single-family homes totaled 552,800 in May, according to the state Department of Finance, up 14 percent from the previous month and 23 percent from May 2009. 

Despite the positive signs, the University of the Pacific forecast predicts the state will not return to pre-recession employment levels until the first part of 2015. 

A June study by the Public Policy Institute of California titled California Economy: Building for a Better Future said manufacturing would be the state’s slowest-growing sector. The fastest are “professional services, administrative services, education and health care.”  The report notes those were also the sectors least hurt by the recession. 

Different parts of the state will recover at different speeds.  The Inland Empire, hit hardest by the collapse of the housing market, has some of the highest rates of unemployment in California.  Fresno County is at 16 percent with Tulare County almost as high. Riverside and San Bernardino average 14.4 percent. Imperial County has a 27.6 percent unemployment rate, by far the highest of any county.  Recovery there, at least in the early stages, will be “especially slow,” the University of the Pacific says.

In contrast, the report credits Southern California with leading the state’s recovery.  Nickelsburg at the UCLA Anderson Forecast sees coastal California recovering more swiftly with inland California continuing to “languish.”  In his upbeat assessment of the Los Angeles County economy, Kyser cites a strong rebound in the entertainment industry in 2010, a healthy increase in international trade as well as an upturn in tourism. 

Of health care, Kyser says, “Though healthcare reform could be an issue in the future, right now this industry reliably generates jobs, year in and year out.” 

The University of the Pacific also points to San Jose as an engine of economic recovery but offers a pessimistic assessment of Sacramento, which had one of the largest percentages of foreclosures in the state. The state capital will increase jobs but at a slower rate than the rest of the state, the forecast predicts. 

Similarly, the forecast expects a slow recovery for the Central Valley cities of Stockton, Modesto and Merced, which will see unemployment rates this year of 16.9 percent, 17 percent and 18.4 percent, respectively. 

While the state’s economy is currently struggling slowly toward recovery, the Public Policy Institute concludes that in the long term, the state’s economic prospects are “fundamentally strong.”

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