Chapman Forecast: More sluggish growth for CA

Nov. 29, 2012

By John Seiler

Chapman University’s 35th annual economic forecast projects more sluggish growth for California in 2013. It was presented Wednesday in Costa Mesa before about 1,500 business and community leaders by Chapman President Jim Doti, also an economist; and Esmael Adibi, director of the school’s A. Gary Anderson Center for Economic Research.

According to Chapman, California’s unemployment rate of 10.1 percent in October remains higher than the U.S. rate of 7.9 percent because the state lost jobs faster during the Great Recession; then created jobs more slowly during the recovery. My analysis is that the state was severely crippled by Gov. Arnold’s Schwarzenegger’s policies of tax increases, wild spending increases and regulatory excess, especially AB 32, the Global Warming Solutions Act of 2006.

Note that the only time California exceeded national growth was during the late 1990s, when we had a “comparative advantage,” according to Chapman, because of the dot-com boom.

However, in recent quarters California once again actually has been creating jobs faster than the national average. Chapman attributes this to growth in the fields of leisure and hospitality; professional and business; and health care. (The following chart includes Orange County data.)

That certainly is positive. But Chapman notes that employment in California still remains below what it was before the Great Recession hit in late 2007. By contrast, after previous recessions, by this point in the recovery period all lost jobs had been replaced.

Another positive point is that exports from California to foreign countries have risen sharply during the three years of the recovery. There is great global demand not just for the magical devices from Silicon Valley, but for the medical devices whose industry is centered in Irvine, the fantasy entertainment conjured up by Hollywood, and the goods and services of many other industries.

Note how, since the depths of the recession in 2009, merchandise exports have risen from $28.7 billion in the second quarter of 2009 to $42.1 billion in the second quarter of 2012. That’s a 47 percent increase in just three years; although of course it comes off the recessionary trough.

Chapman’s survey of California manufacturers also shows increasing growth.

It may seem that the state is overcoming  its reputation for over-regulation, such as AB 32, and high taxes. But despite this encouraging growth, as mentioned above the state still hasn’t recovered all the jobs lost during the recession, let alone exceeded them with robust expansion. Moreover, the last chart shows the manufacturers’ sentiments actually turning downward, to 58 percent positive in the fourth quarter of 2012, compared to 61.1 percent positive in the third quarter. (Anything above 50 percent positive indicates future growth.)

Another positive element is that consumer sentiment in California remains as sunny as a day at the beach. It’s at its highest level since before the Great Recession.

Despite the many positive indicators, payroll job growth remains sluggish. During the horrible year of 2009, California actually lost a stunning 6 percent of its jobs. Another 1.1 percent were lost in 2010.

Since then, job growth has been only 0.9 percent in 2011 and 1.7 percent in 2012. The projection for 2013 also is anorexic, at just 1.6 percent.

The job numbers are 238,000 jobs created in 2012 and 234,000 in 2013.

California Payroll Job Growth

Fiscal Cliff and California

California, of course, is part of the United States. Chapman anticipates that the “fiscal cliff” crisis will be resolved with some tax increases of about $150 billion, combined with $50 billion in spending cuts. This will produce national economic growth of 2.1 percent in 2013, down a little from 2.3 percent in 2012.

Both numbers are sluggish, indicating that there’s going to be no radiant boom to propel the United States and California into economic nirvana.

That means the Proposition 30 and Proposition 39 tax increases, as well as the tightening regulatory environment under AB 32, will take their toll on the state, with no relief from an economic boom such as was enjoyed a decade ago.

Chapman warns that the European economic crisis could cripple the global economy, slowing growth across the United States, including California. Golden State exports, the lifeblood of our prosperity, could suffer.

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