The California Employment Development Department today announced unemployment dropped to 6.9 percent in February, down from 7.1 percent in Dec. 2014; and down more than a point from the 8.1 percent of Jan. 2014.

It also found “nonfarm payroll jobs increased by 67,300 during the month for a total gain of 1,806,700 jobs since the recovery began in February 2010.”

But a slight caution comes from the California Composite of Consumer Sentiment released yesterday by the A. Gary Anderson Center for Economic Research at Chapman University. Any score above 100 is considered positive. The Index dropped to 101.2 in the First Quarter of 2015 from 108.9 in the Third Quarter of 2014.

The Third Quarter reading was “a 10-year high since 2004,” Anderson Center Director Esmael Adibi told CalWatchdog.com. “Now we’re seeing a little dip. But more people still are optimistic than pessimistic.”

He said the drop in sentiment “was kind of puzzling” in the midst of generally positive news. The survey asks only if things are better or worse, and doesn’t ask reasons.

But Adibi surmises the reason is the recent spike in gas prices has people jumpy. In a month, prices in the state have gone up $1 a gallon.

“Overall I’m not seeing too much into the drop,” he said. “The last four quarters have been good. There’s steady job growth going on. Home prices are up, making homeowners happy. The stock market is up, bringing the ‘wealth effect'” — in which stock owners spend some of their profits on consumer goods. “And mortgage rates are helping financing.”

U.S. unemployment

The California improvement followed the overall U.S. unemployment rate. The U.S. Bureau of Labor Statistics today reported:

“Total nonfarm payroll employment increased by 295,000 in February, and the unemployment rate edged down to 5.5 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in food services and drinking places, professional and business services, construction, health care, and in transportation and warehousing. Employment in mining was down over the month.”

It was the best showing since mid-2008, before the financial crisis struck in September that year.

But disappointing was wage growth. Reported the New York Times, “Last month, wages rose just 0.1 percent, according to the Labor Department, a disappointment coming off an increase of 0.5 percent in January.”

Forecast

Along with Chapman President Jim Doti, every December and June Adibi delivers a forecast of the state and national economies. Adibi gave CalWatchdog.com a glimpse into what the next June forecast will look like — assuming there are no unforeseen events, he cautioned, such as a major war.

Adibi said overall U.S. jobs growth was “steady, but not strong.” So that’s another caution.

He added that lower oil prices have helped the overall European economy, which is much more dependent on imports than the American economy.

“The main worries are with other countries. But we think Europe will do better — except for Greece,” which remains near insolvency. “German exports are strong thanks to the weaker euro, which also helps European tourism.”

In addition to the Chapman survey of California consumer sentiment, Adibi pointed to the similar survey of all America by the University of Michigan. Released Feb. 27, it found:

“The small overall decline from January still left consumer confidence at the highest levels in eight years. It is hard not to attribute the small February decline to the temporary impact of the harsh weather, as declines that occurred in the Northeast and Midwest were triple the average loss, while Southern residents grew more optimistic.”

At least most Californians don’t have to put up with all that snow.

Summing up, Adibi said, “Overall we’re positive for stronger growth.”

The California Index of Leading Employment Indicator jumped to 128.4 in the first quarter of 2014 from 122.5 in the fourth quarter of 2013. The Indicator is compiled by the A. Gary Anderson Center for Economic Research at Chapman University. Any number above 100 indicates growth; below 100 means jobs shrinkage.

The following graph follows the Indicator’s path over the last eight years, dramatically showing the jobs crash in California during the Great Recession, and the subsequent recovery.

The Indicator compiles four components:

• GDP growth, which rose 2.7 percent in the fourth quarter of 2013 (year to year), up from 2.0 percent in the third quarter.
• The S&P 500, which increased 29.6 percent in the fourth quarter, up from 16.7 percent in the third quarter.
• Real exports, which rose 5.4 percent in the fourth quarter, up from 2.3 percent in the third quarter.
• Construction spending, which rose 27.1 percent in the fourth quarter, up from 23 percent in the third quarter.

“We used the fourth quarter 2013 components to show us what will happen in the first quarter of 2014,” Esmael Adibi, the director of the Anderson Center, told CalWatchdog.com.

Jobs growth

“All variables combined in the Indicator series show a decent jump from the previous quarter,” Adibi said. “So jobs creation should pick up a little bit of steam and do better than in the fourth quarter of 2013.”

Adibi pointed to a second graph showing how closely actual jobs growth (the dotted line) tracks the Indicator’s projected jobs growth. So Chapman’s jobs projections have been close to spot on:

The graph does show that jobs growth still is not as strong as it was in the previous economic recovery of the a decade ago.

Taxes

The jobs growth comes despite recent tax increases, in particular the $7 billion increase from Proposition 30, which voters passed in Nov. 2012. The biannual Chapman Economic Forecast, which Adibi produces along with Chapman President Jim Doti, has warned that tax increases would retard economic growth and jobs creation.

“Tax increases obviously are negative,” Adibi explained. “If we didn’t have those, jobs growth would be even higher.”

Adibi still expects the 2.3 percent annual economic growth projected in Chapman’s Nov. 2013 Forecast to be close to what really happens, “barring the unexpected.”

He said that businesses especially crave certainty. And they’re currently getting certainty on taxes. The state budget is balanced for now, meaning more tax increases are unlikely.

As to Brown’s re-election bid, Adibi said the economic numbers are looking good should the governor seek a fourth term. “The economy is doing better,” Adibi said. “The budget surplus is kicking in due to higher taxes and economy. Voters also will like more spending taking place” on schools, universities and other popular programs.

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.