QE2 Promise Dying on the Vine in California

by: Gregor Macdonald

California reported its April jobs data on Friday. The LA Times repeated the figure, laid out in the report from EDD, that on a year-over-year basis the state had created 144,000 jobs. What the Times did not clarify is that these were non-farm payrolls. For the fuller picture of the Golden State’s job market, I track the total employment figure. In the same time period called out in media headlines, therefore, the number of employed persons actually fell by 22,000, from 15.960 million to 15.938 million.

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Given that California carved out new, post-2008 crisis lows in total employment as recently as November/December of 2010, it matters little that non-farm payrolls rose by 144,000 over the past year -- or even that total employment fell by 21,500. The more obvious conclusion is that the job creation forecasted by the Fed, and in particular Janet Yellen of the San Francisco Federal Reserve, is simply not coming to pass.

The country’s largest state remains at stall speed, which is to say it’s extremely vulnerable to myriad economic shocks, especially as the US housing market rolls over again. Moreover, the price of oil has averaged $85.22/barrel in the last 12 months. For a state so completely leveraged to the Auto-Highway complex, that is rough.

QE2 has done a wonderful job in raising the price level for various assets outside of housing. However, QE is a complete bust as a jobs-creation program. Just look at the chart. There are fewer people employed now in California than there were at the start of the last decade. More to the point: Neither QE1 nor QE2 has moved the national needle on jobs since the economic lows of early 2009. Fed vice chairman Yellen’s jobs-creation promise has now died on the vine.