Monthly Archives: May 2012

Economic Perspective from the California Board of Equalization

The second 2012 edition of Economic Perspective from the California State Board of Equalization delves into taxable equipment and software purchases by businesses.

According to the article:

  • U.S. businesses spent over $1 trillion on equipment and software in 2011 (about  7% of GDP)
  • Information processing accounted for 54% of U.S. equipment and software in 2010
  • Software spending accounted for 25% of all equipment and software spending by in 2010.
    • 37% of business software was created internally (“own account” software)
    • 28% of business software was prepackaged, and
    • 34% was custom designed
  • Manufacturing spent more on equipment and software than any other industry, accounting for about 20 percent of all equipment and software spending.  (Read the article)

The importance of software and information processing business spending is of particular significance to California.  During the recovery from the Great Recession, industries such as computer manufacturing, software publishing, and computer system design have played an outsized role in the growth of the California economy.


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Is Facebook Killing Silicon Valley?

In a brief interview on Yahoo Finance, Professor Steve Blank raises concerns that the Facebook IPO could intensify expectations for quick returns on venture capital investments.  He fears this could actually hurt long term innovation in the Silicon Valley.

“Serial tech entrepreneur and professor Steve Blank argues that Facebook and the “social media” craze are ruining Silicon Valley’s innovation machine.”

“VC’s have become so intoxicated by the lure of instant riches from the likes of Facebook and Instagram that they’re mostly funding companies that have a chance to be worth billions overnight”

He also discusses his concerns with The Atlantic here.

Watch the interview.

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The Declinists are Wrong, Part 2

California is Wealthy

By Dennis Meyers (Twitter: @goldstateoutlok)

“The report of my death was an exaggeration.” Mark Twain 

“With your help, that’s what we’ll do … prove the declinists wrong once again.” Governor Jerry Brown

Part one of this series showed that California is a big state with a big diverse economy to match.  Part two demonstrates that compared to the rest of the nation, Californians generally are wealthy and well paid.

California is a land of contrasts, physically and socially.  It is home to bustling cosmopolitan coastal metropolises as well as quiet rural communities spread across mountains and deserts.   From an economic perspective, it is impossible to paint the state with a single brush.  In addition to possessing a diverse economy, California is a prosperous place.

California’s per capita personal income is 7 percent higher than the national average.  It ranked 14th among all states (including D.C.).

California is home to a disproportionate share of the nation’s wealthiest communities. Among communities with 75,000 or more residents, 16 of the richest 50 and 31 of the richest 100 are in California.

California generally outperforms the nation at creating high-paying jobs in leading industries—computer manufacturing and information.

Although the national job growth in Professional and Business Services in 2011 outpaced California, it was mainly due to stronger growth in employment services (temporary help).  Over the course of 2010 and 2011, California generally outpaced the nation’s job gains in the higher paid professional subsectors.

The one high-wage sector in which national job gains outpaced those in California was Mining, which includes oil and natural gas production.  There are several regions, such as Texas, that are blessed with generous deposits of these resources which California lacks.  This advantage also shows up in Engineering Services employment noted above.  The presence of healthy oil and natural gas resources typically generates demand for engineering consulting services related to exploration and extraction.

Since the year 2000, California has imposed a minimum wage requirement that is higher than the federal minimum wage.  This contributed to the achievement  that California has one of the lowest rates of workers earning at or below the federal minimum wage.  In 2010, only 2 percent of California workers earned at or below the federal minimum.  Texas and Mississippi were tied with the highest rate at 9.5 percent.


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Changes in California Poverty Rates, 2007-2010 and the New America Foundation provided a useful interactive map that depicts the change in poverty rates from 2007 to 2010 for each county in the nation.

The results for California clearly reflect the nature of how the state was affected by the Great Recession as well as its historic geographic disparities.

  • The Central Valley suffered the worst increase in poverty.
  • Fresno and Stanislaus counties suffered the largest increases in poverty rates, rising 6.8% and 6.1% respectively.
  • San Bernardino was not far behind, rising 6.0%
  • Surprisingly, Santa Barbara County also suffered a significant increase in its poverty rate, 5.5%


  County                       2007                2010

Fresno                         20.0%              26.8%

Stanislaus                    13.6%              19.7%

San Bernardino           12.1%              18.1%

Santa Barbara             12.2%              17.7%

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May Revision Forecast from the Department of Finance

The following is from the May Revision to the Governor’s 2012-13 Budget. The forecasts were prepared in April 2012 and are based on information available at that time.

Economic Outlook

The California and national economies are recovering at a modest pace.  The economic outlook has improved slightly since the Governor’s Budget.  Labor markets made higher gains in the latter half of 2011, but growth moderated in the early months of 2012.  Consumer attitudes and spending and business investment have been improving.  Gross Domestic Product (GDP) growth is projected at a higher level for 2012.  The risks to recovery are now projected to be much lower.  However, real estate conditions and unemployment rates continue to limit growth.

The biggest change in the California outlook stems from incorporating assumptions about the impact of the initial public offering of Facebook stock.  It may turn out to be one of the largest initial offerings in U.S. history and far larger than all of the recent offerings in the internet sector. Since the company, its founder, principal employees, and many of its initial investors reside in California, it is projected to have a significant positive impact on California personal income in the latter half of 2012, increasing it by 1.7 percent.

The Nation

The national economy is recovering at a slow, yet steady pace.  Labor market conditions are gradually improving.  Despite some volatility that was likely caused by an unusually warm winter in many areas of the country, payroll job growth has strengthened.

  • Nonfarm employment expanded by 201,000 per month on average during the first four months of 2012, compared to growing 153,000 per month in 2011, and 86,000 per month in 2010.
  • The national unemployment rate, while still high at 8.1 percent in April, has been gradually improving since August 2011.
  • Initial and continuing claims for unemployment benefits continued a two-year decline during the early months of 2012.

Better employment conditions are translating into rising incomes, better consumer sentiment, and more consumption expenditures.

  • Personal income in March 2012 was 3.2 percent above its level of one year ago, while wages and salaries grew 4.4 percent from a year earlier.
  • During the first quarter of 2012, consumer sentiment had fully recovered from the mid-2011 slump.
  • In February 2012, consumer spending saw its largest gain since July 2011, led by a 900,000-unit increase in vehicle sales.  Consumer spending contributed more than 2 percentage points to real GDP growth in the first quarter of 2012.

In addition to consumer spending, rising capital investment has been a significant driver of recent economic growth. Businesses are filling equipment upgrade and replacement needs postponed during the recession.  Business spending on equipment and software expanded over 10 percent in 2011—outpacing the growth of all other GDP spending categories.

Rising global demand for U.S. goods and services has been an important component of the recovery.  Exports slowed sharply during the recession before rebounding when the recovery began.  They grew by more than 11 percent in 2010 and 6.7 percent in 2011.  However, the appreciation of the dollar and spreading weakness in the Eurozone will dampen export growth going forward.

The absence of a recovery in real estate markets has been the main drag on the recovery.  However, tentative signs have emerged that housing markets may have stabilized.

  • In February 2012, the S&P/Case-Shiller 20-City Home Price Index posted its first gain since March 2011.
  • The volume of home sales has been on a modest rising trend since the middle of 2011, largely supported by investor purchases.
  • The value of homebuilding activity in March was up over 7 percent from a year earlier, with nearly all of the gains coming from multifamily construction.


California regions that are home to high-technology, high-wage, and/or export-driven industries are doing relatively well.  The remaining areas of the state are still affected by weak housing markets and public sector financial troubles.

California is benefiting from its attractiveness to venture capitalists.  In 2011, California accounted for more than half of the entire nation’s venture-backed investment—for the fourth consecutive year—led by software and biotechnology.  A substantial portion of the state’s recent jobs gains stemmed from hiring in high-wage industries such as computer design, semiconductor manufacturing, information technologies, and scientific and technical research.  This focus on high-technology industries has boosted California incomes.  For example, the Facebook IPO could result in about $12 billion of additional income for California residents in the latter half of 2012.

California continued to benefit from strong export growth.  After a 19-percent gain in 2010, California exports rose 11 percent in 2011.  Computers, electronics, electronic machinery, and transportation equipment accounted for over 30 percent of this growth.  Among recipients, Mexico accounted for nearly 32 percent of the 2011 export gains.

In contrast, labor markets are making slower and less consistent progress.  After accelerating in the second half of 2011, nonfarm employment growth slowed at the beginning of 2012—from an average monthly gain of 37,000 jobs during the last five months of 2011 to 19,000 on average during the first three months of 2012.  The fastest growing industry sectors included information; professional, scientific, and technical services; and private educational services.

California’s housing markets appear to have reached their low points and are recovering slowly.

  • Driven to a large extent by investors, home sales have increased from the 469,000-unit pace in the middle of 2011 to a 517,000-unit pace in the first quarter of 2012.
  • Although still much higher than historic levels, notices of default have declined to 257,700 in 2011 from their peak of 456,300 in 2009.
  • The $268,300 median sales price of existing single-family homes sold in January 2012 was up 8.4 percent from the lowest price recorded during the recession—$247,600 in February 2009.

The Forecast

The outlooks for the nation and California are slightly higher than the Governor’s Budget forecast.  Both economies are expected to continue to make slow but steady progress.  The recovery is on firmer ground, with a much smaller risk of slipping into another recession.  As shown below, California is forecast to recover the nonfarm jobs lost during the Great Recession in the fourth quarter of 2015, rather than in the second quarter of 2016 as was previously forecast.

Weak housing markets and job growth have made this the slowest recovery in the post-World War II era.  Barring serious disruptions, job and wage growth will lead to a balanced expansion.  The national economy is forecast for real GDP growth in 2012 and 2013 of 2.2 percent and 2.4 percent, respectively, while 3.4 percent is projected for 2014.  The risks to economic recovery are from instability in Europe and the Middle East, as well as potential changes to address the federal deficit.

See the following figures for highlights of the national and California forecasts.

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The latest newsletter from the California Economic Forecast


By Dennis Meyers

The May 2012 newsletter by Mark Schniepp at The California Economic Forecast provides a great illustration of the importance of technology employment to the state’s economic recovery.

“Much of the job creation in California this year has been the result of large gains in hiring in computer design, semiconductor manufacturing, information technologies, and scientific and technical research.”

“Over the last 2 years, more than 13,000 tech jobs have been added in Santa Clara County.  Employment in the manufacture of semiconductors is currently at the highest level in ten years.”

Read the newsletter here for more illustrations and information.

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New Forecast From the University of the Pacific

By Dennis Meyers

On April 30, a new California state and metro forecast was released by the Business Forecasting Center at the University of the Pacific.   It projects a continuing, but very slow recovery.   Real California GDP is projected to grow 2.5% on average during 2012 and 2013, and nonfarm employment will grow 1.4% and 1.5% in 2012 and 2013 respectively.

According to Dr. Jeff Michael, the Center’s Director, “The Stockton area was one of the hardest hit areas in the nation, but leads the state in job growth over the past 12 months”

Other significant projections  include:

“Payroll jobs continue to grow at a steady rate, but the state has still only recovered one of every four jobs lost in the recession. “

“Despite sluggish job creation, real personal income is expected to approach and exceed its 2008 peak in the second quarter of 2012 due to stronger recovery in non-wage income and higher wage industries such as technology. “

“295,000 new Construction jobs are expected to be created over the next five years”

Read the official news release here for more insights and details.  (Full forecast available with subscription)

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