California's Labor Market in Trouble as Unemployment Rate Soars

California's unemployment rate is currently at 8.4 %, a 14 year high. (See here). UCLA'S Anderson Forecast Group is projecting that unemployment will rise in the state through next year to at least 8.7% and to remain in this range through 2010. (See here).

The softness in California's labor market is troubling as its employment rate is currently a full 1.7% worse than the country's current unemployment rate of 6.7%. (See here). And the situation is deteriorating. Since November of 2007, California's unemployment rate has jumped 2.7% -- from 5.7% to its current 8.4% -- faster than the 2% jump in the United States' unemployment rate during that time period. (See here).

Accordingly, California's labor market is softening at a faster rate than the rest of the country. The state's accelerating unemployment rate comes at an inopportune time when the state's budget deficit is projected to hit $41.8 Billion in the next 18 months. (See here).

The state is taking drastic steps to stem the gushing flow of red ink. On December 17th, California's Pooled Money Investment Board voted to halt the expenditure of $3.8 Billion slated for infrastructure projects. (See here). Gov. Arnold Schwarzenegger has further issued an executive order directing state agencies to slash their payrolls by 10% and to freeze hiring. (See here).

These job cuts will further increase unemployment in the short run and indicate the precarious financial condition of the state. Indeed, Standard & Poor has lowered California's short term credit rating to SP-2 and has further placed $53.8 Billion of the state's long term debt on negative CreditWatch. (See here).

Keep an eye on developments in the state as the situation is worsening. Tax revenues for the first 5 months of the fiscal year were 4.9% less than expected. (See here). Year over year, San Francisco's office rents are down 22%. (See here). Chapman University economists are forecasting that housing prices will not rebound in the Inland Valley region of the state until late 2009. (See here). Housing prices in Southern California - including the coastal regions - are down 44% from their 2007 peak. (See here). Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University believes that a further 15% to 20% drop in housing prices is not out of the question. (See here).

The next 12 to 18 months will be a very challenging period for California. In the short term, its weak labor market, increasing deficits and deteriorating commercial and residential real estate markets will be daunting.

Comments

[herbert hoover:]

The only difference between California and the rest of the US is that California got there first. The rest of the country follows where the Left Coast leads. If anyone thinks that the recession will be over in mid-2009 look here for a leading indicator. So far, it ain't there.

2008 Dec 22 07:18 AM

[sstro:]

California is in for a whole lotta trouble. The days of greed,fraud and corruption are the root cause of the problems. Our tax and spend law makers have little imagination. There so called FEEs will put an untold burden on individuals and business. Instead of taking measures to keep what business we have and attract others to come they drive them away. This flight has been going on for many years and now the price of this is taking its toll. WAKE UP Sacramento, Come down to earth like the rest of us have had to do.

2008 Dec 22 08:47 AM

[notsosmart:]

if you double the unemployment figures you are more likely to be closer to the truth.govt.figures cant be believed.there can be no recovery as more & more are unemployed.the whole thing was one big wall st & govt. ponzi.madoff is a piker compared t what was done by the insiders. & they have no idea how to fix it exept reward the scammers & crooks that caused it.it wont work.

2008 Dec 22 10:54 AM

[Duude:]

California voters are getting their just deserved reward for stupidity at the polling place. Our legislature and state senate is made up of some of the most brain dead economic illiterates this nation has ever seen in a legislative body. They are absolutely convinced that even though we rank close to the top of states with high taxes that the solution can only be.......higher taxes. That has to be the answer. Hasn't it always been the answer before? Of course, we'll attract many new businesses to California if we will only raise taxes higher. We have the third largest state in square miles and pay the second highest gasoline taxes in the country. So, let's raise it exponentially higher so that people have to pay much more to commute to work. Additionally, we will benefit with the increase in prices for all goods that need to be transported from and by the state highways. Let's also raise that low 8.25% state sales tax to 9.75%. That will teach those materialist voters a thing about conservation.
Cut programs? What are you kidding? We're currently working on how we can make up for lost automatic markups in future years. Voters? Hey, we educate those stupid turds. We can tell them anything and they'll believe it.

2008 Dec 22 01:53 PM

[carey_jim:]

Excellent article (I like statistics!)

A silver lining might be illegal immigration. In California Illegal immigrants are working for $10 an hour without any benefits and constitute a large percentage of the unskilled and semi-skilled California work force.

In every major California city they can be seen standing in very large numbers waiting to be picked up for day jobs. These very large groups of (mostly Guatemalan) men have got larger and larger as the California recession proceeds.

They have presented a huge problem for unskilled American workers and have been a major obstacle to organizing and demanding jobs with worker accident insurance, regular hours, safe working conditions, etc..

These unskilled Californian workers suffer the most from illegal immigrant workers and would benefit the most from being organized.

California might see a reduction in homelessness, crime and drug abuse if we could employ their unskilled workers at reasonable wages with benefits, instead of illegal Guatemalans.

Maybe this will be one of the famous opportunities that every crisis presents.

2008 Dec 22 02:59 PM

[calwatcher:]

Nice tight article.
California is now ripe for an adjustment that should have happened years ago. Home values in many California communities, especially those close to water, have been beyond the reach of 80 percent of the residents for years. That may finally change, and it should.
In sum, the state has a laundry list of vices: too many people working too few hours with too many entitlements as they borrow too much money with too few assets and no savings.
Illegal immigration is one of the only bright spots in the state's economic outlook. Where else can you get hundreds of thousands of people to pay taxes and not claim any benefits? And please don't think native Californians are willing to do those jobs that immigrants do, not when it is so easy to suckle the government tit.
Californians have become specialists at milking disability, unemployment and any other state handout program. Employees cost more than in any other state in the union. Most Californians can quote you the phone number of a personal injury lawyer! Good marketing meets a market that would rather get in a car accident and sue than go to work.
California needs to look at why places like Utah are faring much better during the economic downturn. It is by doing a lot of the things that made the US such a great place to put a business in the first place.
And let out of prison the 100,000 or so non-violent drug offenders that the state currently pays about $47,000 each to house and feed. This is no time to pour billions down a money shredder known as the drug war.
The reality is the most businesses are looking at how to get the hell out of California before its economy falls into the ocean.
Others with some liquidity are thinking that 2009 and 2010 may be a good time to look for that second residence in San Diego.
The bright side is that you've got one of the sharpest governors in the US. Still, Californians are not the best at gulping hard and swallowing a bitter pill, even when they can see it is only going to get bigger and more bitter.

2008 Dec 22 04:10 PM

[breckandy:]

San Diego was the first to bubbleburst 3 or more years ago.
It will be the first to recover. Real estate inventory there has dropped a lot since last year. Mostly it is the junk and foreclosures that are selling. Same for Denver, CO. It had it's bubble in 2000 and never recovered, Now inventory is dropping. Only 2 places in the nation I see this.

New construction has been dead for 2-3 years. A shortage will follow--they are still making babies, all types of immigation and people need somewhere to live.

A feeding frenzy for real estate will happen in certain locations in the next year or two .

Hyperinflation will follow short term deflation. Wait until all those diluted dollars they are printing trickle down.
The cost of new construction and shortage will drive up prices of real estate through the roof and the cycle will begin again and...
The Pendulum Swings

2008 Dec 22 06:26 PM

[Richard Rider:]

On Dec 22 01:53 PM Duude wrote:

. . .

> We have the third largest state in square miles and pay the
> second highest gasoline taxes in the country.

Actually, California is numero UNO. Remember, unlike many states, we charge sales tax on gas. To add insult to injury, we charge sales tax on the tacked on federal and state excise taxes on gasoline. A tax on a tax.

We're number one!

2008 Dec 24 03:46 PM