No Economic Recovery In California

The purpose of an economy is not to serve statistical analysis, but rather, to serve people. Thus, we have to continually ask ourselves: what’s actually happening to Americans now that we’re three years beyond the official onset of the recession? Is the quality of life for Americans improving or not? The value of homes, the security of employment, and the cost of food and energy–these are the benchmarks we should use when judging the present state of the economy. To do otherwise would suggest that our only concern would be for the United States as a kind of corporate industrial-park, where mail is collected, SEC filings are generated, and cash builds up on balance sheets.

If we take a look at California employment, for example, we see that there is in fact no economic recovery taking place in the nation’s largest state. None of the jobs lost in the financial crisis and recession have been replaced. Worse, that California’s employed population is now running at levels last seen ten years ago, means that the unemployment rate itself is very high, and is not coming down. Well, California like the rest of the United States has a bigger population now than ten years ago. | see: California Employment in Millions 2000-2010. (updated today, 17 December 2010)

In November, 15.97 million people were employed in the Golden State. This number is now flat-lining, at a dead-calm over the past few months. And yes, the look of dismay you see on the face of incoming Governor Jerry Brown is the realization that California is trying to service obligations and a population in fiscal year 2011, with a workforce last seen in the year 2000. That is grim.

Here at www.gregor.us and also in recent issues of StockTwits Macro Weekly, I’ve discussed both the recovery in global resource demand and also the very notable recovery taking place in US based export industries from capital goods to agriculture and coal. There is no question that the weak dollar, combined with Non-OECD industrial growth is giving a huge boost to the US railroad industry and all the goods that are pumped through it from our ports. However, this uptick in economic flow is not enough to move the trailing dead-weight of US unemployment–which is now becoming structural. Finally, for anyone who would like to challenge the notion and assert that “California is not the US economy” I would say this: Sorry, but California is indeed the US economy. The US will be going nowhere without the full participation–if not the leadership–of California.

-Gregor

Data: Labor Force and Unemployment Data page via State of California.

Photo: Billboard art of Kerry Tribe, as part of the How Many Billboards art project, Los Angeles.

  • Richard

    Heck, why stop there Mr McDonald.
    Consider both what is fungible and what is wealth.
    Is it not also possible that parts of the dot-com boom and the creation of the bloated FIRE economy depending on real estate bubbles during the period after the dot-com bust caused unsustainable blips on a collapsing real economy which date back to the onset of rapid globalization in the 1970s? This hidden by cheap oil allowing vast credit creation and consumption of stuff.
    In other words, we’ve been fooled by politicians and economic commentators especially in steadily prosperous and ‘growing’ places like California that there was real growth after 1970 or 1980 and even booms when in fact the available per-capita resources and the real economy in most ‘developed countries’ turn out now to be far smaller than we thought during the last few decades, even as the population grows?
    Bursts of oil-based consumption like your chart shows but not real sustainable increases in wealth happened, then poof. Cali, USA, the world.

  • C185pilot

    I guess Jerry Brown is facing his defining moment–will he be a Nixon opening up China, or a union pandering hack. Cutting public unions back to size and eliminating the Davis Bacon act so that taxpayers get an honest dollar’s work for a dollar spent, could open a path to renewed growth for
    the California economy. I am not holding my breath.

  • KLR

    Calculated Risk had a post about traffic at the Port of Long Beach compared with diesel demand, and I’ve been messing about with this myself for a while too. The standard size of shipper is a TEU or Twenty Foot Equivalent Unit; you can get the data at http://www.polb.com/economics/stats/teus_ytd.asp. Things have been up YOY since Dec ’09, total is at about 2008 levels now. Diesel consumption and traffic correlate very strongly; unfortunately monthly state data from the EIA is only updated sporadically. You see the same broad peak as in your employment chart, too.

  • gregor.us

    Yes, I have examined most of this data. The US export story is extremely good. It’s possible that exports, as currently measured, will approach 14% of GDP in 2010. I wish it was more, and it may become so next year. However, as I point out in my post–this is not enough to support asset prices, wages, or workforces that were formed during the credit bubble era.

    G

  • gregor.us

    Because oil is no longer available to fund new growth globally, the regions that most rely on oil to run their systems will be impacted most. Hence, California is not going to grow Though, it could indeed oscillate.

    The developments you describe, while laudible and even necessary, will happen anyway–either the ugly way or by choice. At best, however, those changes would only mitigate California’s rate of descent.

    It’s important, for example, to realize now that transportation in California is an energy-sink. In the aggregate it’s likely that it requires more capital inputs than the outputs it provides. Look at the budgets and the total state spending on roads and highways. California is uber-leveraged to oil prices. And that aint’ pretty.

    G

  • gregor.us

    Indeed, and both at this blog and in my longer research reports I’ve made the point that all the “growth” that occurred in the past decade was essentially wiped away. Most of the key parts of the US economy have been re-set to a decade ago.

    G

  • KLR

    How has ’10 shaked out for cumulative year-to-date? Its absolute peak looks sharper than ’04 but I haven’t tallied up those numbers. Agree that isn’t an indicator of a return to those halcyon days of 2002. Which sounds really lame when you actually say it…the impact of the US returning to its old levels of petroleum demand will be news to people who think since there are Volts and LEAFs on dealer lots we no longer need oil, too, of course.

  • Ci185pilot

    Now we learn that the city of San Francisco has cummulative pension liabilities for public workers of $4 Billion, while setting aside $9.7 million toward these liabilities this year. Unfunded state government pension liabilities are reported to exceed $500 Billion. With
    these sorts of claims on future investable resources, how will the state adapt to energy scarcity.
    How will it ever build-out any new energy efficient infrastucture? Will it ever complete the new
    high speed train to nowhere now planned for Corcoran? Or should we just expect collapse and
    a “mad-max” future for the state?

  • Richard

    Yes. Now suppose that oil becomes much cheaper in a year or two, but credit/financial system and confidence don’t recover properly.
    I’m not sure how California would make out then. Would the rollback toward 1970-level economy just continue, with the wealthy hunkering down in gated communities, or would ”growth as we know it” return?