California jobs growth will continue especially strong, at 3 percent a year. It’ll be even stronger in the Inland Empire, at 4 percent. The Inland Empire was hit hardest during the Great Recession, but now is coming out the strongest.

However, the Inland Empire’s unemployment rate remains high, at 8.3 percent in April; compare to 7.3 percent for California. The state’s hot high-tech areas continue with low unemployment: San Francisco at 4.3 percent and Santa Clara at 5.4 percent. Orange County also remains low at 5 percent. Giant Los Angeles is at 7.6 percent.

Gubernatorial election

All this is good news for Gov. Jerry Brown’s re-election campaign. Opponent Neel Kashkari, a Republican, is campaigning on the slogan, “Jobs and Education. That’s it.” But the fairly strong economy shears off the first part of that. An uphill battle just became more steep.

In addition to all their other problems in recent decades, Republicans in California have just had bad luck. The 2003 recall turned out to be a disaster for the party because Arnold Schwarzenegger campaigned under the Republican brand but governed like a caricature of a tax-and-spend liberal Democrat.

In the wake of his disastrous tenure, in 2010 even billionaire Meg Whitman’s $180 million in campaign cash couldn’t overcome the Arnold Legacy against Brown’s low-budget but high-competence campaign.

This year, Brown is surfing the wave of the national recovery, which although not great (as noted) is strong enough to make things look pretty good. Brown also has been able to stand up to his fellow Democrats’ free-spending ways with a lot more muscle than that shown by the former bodybuilder.

But anything can happen in a campaign. And probably will.

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.

By JOHN SEILER

This morning, Gov. Jerry Brown vetoed the budget passed yesterday by the Democratic-run California Legislature. Even as he was doing so, Chapman University was revealing a sobering economic forecast that should make the Legislature think twice before raising taxes. I attended the presentation before more than 800 Southern California business and community leaders.

The upshot is that there is going to be no booming economic recovery, as after the 1991-92 and 2001 recessions, with zooming new revenues.

Instead, the modest economic ongoing recovery will continue nationally, with about 2.7 percent growth in 2011 and 3.6 percent in 2012. Chapman last December forecast that the First Quarter of 2011 would enjoy a robust 4.6 percent annual growth rate; but the rate instead was a disappointing 1.8 percent.

Chapman University President James Doti explained that the disappointing First Quarter numbers stemmed from higher gas prices dampening consumer spending, the Japanese Earthquake, frozen Defense spending outlays and the European debt crisis. He forecast that all these will change for the better as the year progresses.

He also said that housing prices nationally would drop 4.3 percent in 2011. This will cause a “negative wealth effect,” in which people, because they have lower home equity, spend less in other areas. “If there is any risk to this weak recovery, the most serious threat is a worsening drop in housing prices,” he warned.

However, he added, the number of households is beginning to expand. People who “doubled up” — such as living with parents — to ride out the hardest times, now are looking for rentals. Eventually, that could turn into increased demand for purchasing homes.

This is reflected in the national number of excess vacant apartment units dropping from 1,008,000 units in the First Quarter of 2011 to 714,000 units in the First Quarter of 2011. Currently, the vacancy rate for apartments is 9.5 percent. That’s getting close to the 8.5 vacancy rate of normal times.

“There’s a lot of pent-up demand to live somewhere,” Doti said. “People are beginning to rent units, while seeing what’s going to happen.”

He added that, over the course of the past century, housing prices have averaged three times personal income. Currently, the ratio is 2.6 times personal income, meaning, “Housing rarely has been as affordable as today.”

The national housing affordability index is 70 percent of people being able to buy a home, “the highest since 1999.” However, he expects foreclosures to exert “36 more months of downward pressures on prices.” He noted that, during the Great Recession, housing prices have dropped faster than during the Great Depression; and there have been twice as many foreclosures.

California’s Forecast

California’s jobs were hit much harder than national jobs, Esmael Adibi told the audience; he’s Director of the A. Gary Anderson Center for Economic Research at Chapman University, which prepares the forecast.

He said that the peak California unemployment rate during the 1990-91 recession was 9.9 percent; during the 2001 recession, 7 percent; and during the 2007-09 recession, 12.5 percent. So we were hit harder this time.

Moreover, the time from the peak unemployment level to the time unemployment dropped to a normal level was 30 months in the 1990-91 recession and 21 months in the 2001 recession. But the number of months from peak unemployment during the 2007-09 recession is 38 — and counting.

California, with its heavy load of taxation and regulation, is just having a tough time dragging itself out of the recessionary bog.

Green Shoots

On the positive side, hiring finally is rising. Payroll jobs growth crashed 6 percent in 2009 and another 1.3 percent in 2010. But Adibi forecast payroll jobs would rise by 1.6 percent in 2011 and another 2.1 percent in 2012. That will create 216,000 payroll jobs in 2011 and 290,000 in 2012.

He also expects that, although state and local governments have been cutting jobs during the recession, they will start hiring again. This will be because the improving economy will generate more tax revenue; and some of the tax increases being proposed will be enacted.

I asked Adibi how the tax increases in the budget passed by the Legislature, but vetoed by Gov. Brown today, would affect the economy. Adibi said he would have to wait to see a final product before offering an analysis.

However, in talking with him many times over the years, including on Monday, he always has warned that higher taxes reduce private-sector economic activity.

Other positive signs for California growth are an improving trend in merchandise exports. From a low of $27.6 billion exported in the First Quarter of 2009, exports rose sharply to $38.7 billion in the Fourth Quarter of 2010. However, they dropped a bit, to $37.5 billion in the First Quarter of 2010, because of the Japanese Earthquake-Tsunami-nuclear crisis.

Chapman’s survey of purchasing managers also has risen. Anything over 50 on this composite index indicates growth. From a low of 41.2 in the First Quarter of 2009, indicating contraction, the index has risen to 62.2 in the Second Quarter of 2011, indicating a continued expansion.

Construction spending also has risen for the first time this year, although it is expected to rise at only about a 5 percent annual rate throughout 2012. That’s still much better than the 36 percent drop in 2010.

California’s housing prices essentially will reflect the stagnant national market. In California, prices rose 10.1 percent in 2010. But for 2011, prices are expected to drop by 4.4 percent; and drop by 0.7 percent in 2012. Adibi said, “There will be no significant increase in housing prices until we get significant job creation. Home prices will stay flat the next two years, waiting for incomes to rise. But prices won’t be declining.”

As I keep warning, the main economic focus of the governor and Legislature should be on jobs creation.

State Budget

Adibi forecast that, if the economy continues to increase, the state will reap higher revenues. However, he criticized Gov. Brown for spending half the unexpected $6 billion in revenues taken in this year because of higher capital gains taxes from the improving stock market. And he noted that the stock market has been declining in recent weeks.

He also warned that the state continues to be foolish in spending increased revenues during recoveries; that the state must even out the boom in revenues in good times, with the trough in revenues during bad times. “Without changes, we will have problems again,” he cautioned.

That was a clear warning to the Legislature to reform its high-spending ways, while restructuring the tax and budget system to prevent future crises. Unfortunately, the insular Legislature is living in a world of its own.