California’s Pending Recession: An Inconvenient Reality

California’s Pending Recession: An Inconvenient Reality

Over the decade, California’s Democrat dominated leadership acted in opposition to rest of America.

The state’s tit-for-tat efforts to enact policies run nearly the exact opposite of common sense fiscal responsibility. Yet many Californians declare victory before the battle ends.

California’s economy dwarfs that of other states, despite of Sacramento’s legislative policies, not because of them.  Bloomberg hints at this fact, albeit with bias spin:

Look at California, which is one-eighth of the U.S. population with 39 million people and one-seventh of the nation’s gross domestic product of $2.3 trillion. Far from being a mess, California’s economy is bigger than ever, rivaling the U.K. as No. 5 in the world, when figures for 2016 are officially tabulated.

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Behind such a favorable outlook is the diversity of the California economy, which grew $42.3 billion during the first three quarters last year. That’s almost as much as the next two fastest-growing states, New York and Florida, combined.

California’s revenue from agriculture, forestry, fishing and hunting totaled $39 billion in 2015, plus $279 billion from manufacturing. The trailing 12-month revenue from California technology companies is $720 billion, or 54 percent of the U.S. industry, according to data compiled by Bloomberg.

The capitalist juggernaut that is California helps explain why the state’s per capita income increased 9.5 percent since 2015, the most of any state and the most since 2012, according to data compiled by Bloomberg. Far from losing jobs overseas, California keeps creating them with an unemployment rate declining to 4.9 percent from 5.7 percent in 2016, faster than the national average.

Definitely sounds like the social utopia Governor Brown and the Liberal Left want everyone to believe. But reality reveals the real dystopia.

The Sacramento Bee began flashing warning signals during the Summer:

…flattening income taxes are just one signal that California’s economy may be peaking.

Another big one came from the Federal Bureau of Economic Analysis last month in its quarterly state-by-state report of economic activity.

It revealed that California’s economy grew by an anemic one-tenth of one percent in the first quarter of 2017 over the first quarter of 2016, the slowest of any Pacific Coast state except Hawaii and the 42nd slowest in the nation. Archrival Texas, by the way, was No. 1, with a 3.9 percent first-quarter economic expansion.

The report from the state Employment Development Department about California’s 4.7 percent unemployment rate (4.9 percent without “seasonal adjustment”) also hinted at a potential slowdown. The jobless rate remained unchanged only because a drop of 20,000 jobs from May was matched by a 20,000-person drop in the state’s labor force.

Speaking of which, a more accurate measure of any state’s job picture is what the U.S. Bureau of Labor Statistics calls “labor under-utilization” and defines as “unemployed, plus all marginally attached workers, plus total employed part time for economic reasons. …”

California’s current under-utilization rate is 10.7 percent, and it’s the fourth highest in the nation, indicating that much of the state’s employment gain since 2010 has been part-time jobs.

Jerry Brown read the tea leaves. And he hopes he can hold off the doom until the end of 2018.

San Jose Mercury News reported a recent Brown conversation:

Twice each year, once in January and again in May, Gov. Jerry Brown warns Californians that the economic prosperity their state has enjoyed in recent years won’t last forever.

Brown attaches his admonishments to the budgets he proposes to the Legislature – the initial one in January and a revised version four months later.

Brown’s latest, issued last May, cited uncertainty about turmoil in the national government, urged legislators to “plan for and save for tougher budget times ahead,” and added:

“By the time the budget is enacted in June, the economy will have finished its eighth year of expansion – only two years shorter than the longest recovery since World War II. A recession at some point is inevitable.”

It’s certain that Brown will renew his warning next month. Implicitly, he may hope that the inevitable recession he envisions will occur once his final term as governor ends in January, 2019, because it would, his own financial advisers believe, have a devastating effect on the state budget.

Why worry, when Leftists claim they can merely tax and spend their way to prosperity?

Zero Hedge provides the worrisome data that Jerry Brown hopes no one sees:

Unfortunately for Governor Brown, the recession he fears may already have arrived in California.

The following chart showing the trailing twelve month averages of California’s civilian labor force and number of employed is one that we’ve adapted from a different project to show that data in the context of the state’s higher-than-federal minimum wage increases and periods of negative GDP growth for the national economy. It shows that in 2017, the size of the state’s labor force has peaked and begun to decline in 2017, while the number of employed shows very slow to stagnant growth during the year.

The data for this chart is taken from the summary tables for the state’s monthly reports on the California Demographic Labor Force, which are produced by California’s Employment Development Department. These are therefore the same numbers that Governor Brown sees, and they have been signaling throughout 2017 that the state’s economy is going through a period of stagnation after having generally grown since bottoming in mid-2011 following the Great Recession.

The labor force and employment numbers aren’t telling the full story however, which becomes evident when we factor in the state’s growing population. The following chart shows the labor force and employment to population ratios for the state’s civilian work force.

In this chart, we find that California’s employment to population ratio peaked at 59.2% in December 2016, having slowly declined to 59.0% through October 2017. Meanwhile, California’s labor force to population ratio last peaked at 62.6% in October 2016, which has since dropped to 62.1% a year later.

On a final note, the charts we’ve featured above were adapted from our project tracking the impact of California’s minimum wage hikes on its teen labor force, where we’ve been that labor force and employment data since July 2003 (which hopefully helps explain why the trailing 12 month labor force and employment to population ratio chart starts showing data beginning in June 2004). As bad as the charts above are for California’s labor force, the employment situation for California’s teens is much worse, having itself peaked in October 2016.

While numbers don’t lie, yet again Democrat smoke and mirrors are used to hide the devil within the details.

 

 

 

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