What’s not to like about California’s economy this summer?
The state’s $2.6 trillion economy would be the sixth largest in the world were it a nation, and many politicians are already crowing that it may move into the No. 5 spot due to economic turmoil in Great Britain.
California’s unemployment rate, which topped 12 percent during last decade’s Great Recession, was at a record-low 4.7 percent in June, reflecting, officials said, a gain of 2.5 million jobs since 2010. Throughout the state, employers are having difficulty finding qualified workers, especially in construction trades.
All good, obviously. But how long will it last? Is the state’s powerful emergence from recession already beginning to lose steam?
You won’t hear Gov. Jerry Brown adding his voice to the political boasting. When he unveiled a revised state budget in May, he was very cautious about the state’s economic future – noting, for one thing, that income-tax revenue has been falling short of previous projections.
“Moreover,” he warned legislators, “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.”
Those 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. Arch-rival 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 gains since 2010 has been part-time jobs.
Adding to the uncertainties is that this decade’s expansion has been concentrated in the San Francisco Bay Area’s technology-centered economy.
The region’s 10 counties have unemployment rates of around 3 percent, while those in the remainder of the state, with few exceptions, are markedly higher, particularly in the interior. Imperial County, for example, had a 20.8 percent jobless rate in June, followed by Colusa County’s 11.9 percent.
Such dependence on one region and one sector of the economy increases the potential downside, as we saw 17 years ago when the “dot com” bubble burst, plunging the entire state into recession.
The economic history of California over the last half-century has been one of boom-and-bust, with recession striking about once each decade.
As Brown pointed out in his budget, the current expansion has been historically long, and a downturn is inevitable. He’s probably hoping that it won’t hit until after he vacates the governorship 17 months hence.