Monthly Archives: July 2012

More Jobs in June

California’s labor market report for June was full of good news. (note caveats below)

  • It was the second consecutive month of noteworthy job growth
  • The 11th consecutive month-over-month gain
  • Job growth was more balanced than in May—five industry sectors had significant gains while May’s gains were concentrated in three sectors.
  • The pace of job growth during the first half of 2012 rivals the pace set in 2005 and 2006—before the recession.
  • Year-over-year job growth was the strongest by number and percent since June 2006.
  •  The unemployment rate dropped to 10.7% from 10.8%.

Better job growth was largely the result of improvements in sectors that were hit hard by the recession and have only recently started to turn around.  A rebound in travel and tourism has boosted leisure and hospitality employment.  Recent improvements in real estate markets helped construction (up 5% year-over-year) and financial activities (strongest year-over-year gain since June 2006).

In June, the state added 38,300 jobs and May’s initially-reported gain of 33,900 jobs was revised up to a 45,900-job gain (a 12,000-job improvement).  Thus, over the two months, California gained 84,200 nonfarm jobs and boosted total employment to its highest level since February 2009.

California added 147,700 jobs during the first six months of 2012, which was the strongest half-year growth since the second half of 2005.

Year-over-year job gains in June totaled 279,100 or 2.0 percent—the strongest growth by number and percent since June 2006.  The private sector led this growth.  Private employment rose for the 12th consecutive month in June and was up 2.7 percent from a year earlier.  In contrast total national employment was up 1.4 percent in June and private employment was up 1.8 percent.

Industry job gains in June were led by the trade, transportation, and utilities (9,400), leisure and hospitality (9,200), construction (8,100), and professional and business services (7,800).  Other growth sectors included information (5,600), financial activities (4,400), and other services (2,100).

Four industry sectors lost jobs in June.  Manufacturing lost 4.400; education and health service, 2,100; government 1,700 and mining and logging, 100.

CAVEATES

This was a very good report but several consideration should be kept in mind.  July could break this winning streak—the state lost jobs in each July from 2008 through 2011.   Strong job growth at the state level may be hard to maintain if national employment gains remain tepid or weaken more (the nation added only 80,000 jobs in June).  Despite the recent gains, there is still a long way to go to regain the jobs lost during the recession—nonfarm employment in June was still 885,500 jobs below the prerecession peak.

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California Economic Update, July 2012

The Department of Finance released its July 2012 Finance Bulletin which includes the following review of the latest economic indicators for California.

 Economic Update

Regional employment as well as pending home sales information for May indicate that the recovery is on firmer ground than a year ago.  Regional employment data show that job growth is spreading inland from the coastal areas.  Low mortgage rates and home prices boosted demand for homes and real estate sales have become less dependent on investors and distressed sales.

Labor Market Conditions

While the pace of job growth during the first five months of 2012 was modest but steady across sectors, the gains were more broadly spread around the state’s major metropolitan areas.

Among California’s 13 leading metropolitan statistical areas, all but three saw better job growth during the first five months of 2012 than during all of 2011.

In four regions, the pace of job growth accelerated by a full percentage point or more.  Three of these four—Fresno, Riverside, and Stockton—are inland regions that were some of the areas hardest hit by the recession.  Job growth in the Stockton MSA went from negative 1.0 percent year-over-year in 2011 to positive 3.9 percent during the first five months of 2012—a 4.9-percentage point swing.

In 2011, only 4 of the 13 regions had year-over-year job growth above 1 percent.  During the first five months of 2012, eight regions met or exceeded 1 percent growth.  Similarly, whereas four areas had negative  or no job growth in 2011, only two—Sacramento and Modesto—had no job gains during the first five months of 2012.

 Real Estate

Pending home sales in May appear to indicate improving real estate demand in the near future.  Although unchanged from April, pending sales of existing single family homes in California were up substantially from a year earlier, which marked the 13th consecutive month of year-over-year improvement, according to the California Association of Realtors’ Pending Home Sales Index.

Equity, or non-distressed, sales accounted for a much larger share of all home sales in May compared to a year earlier.   Equity sales accounted for over 59 percent of all sales, up from 55.8 percent in April and much better that the 51 percent they accounted for in May 2011.

Distressed sales made up about 41 percent of all sales in May, down from 44.2 percent in April 2012 and 49 percent in May 2011.

The share of real estate owned sales dropped significantly over the year, from 28.4 percent in May 2011 to 21 percent in May 2012.

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The Dog That Didn’t Bark

I had grasped the significance of the silence of the dog,…”— Sherlock Holmes in Silver Blade.

When I saw this title America’s New Foreclosure Capitals, I thoroughly expected to see some of California’s usual suspect communities. Instead, there was a notable lack of California locales on the list.

Forbes and RealtyTrac culled through data for more than 200 MSAs to identify the 20 in which foreclosure activity accelerated the most over the past year. The factors considered include the increase in foreclosure activity from May 2011 through May 2012; the size of the shadow inventory supply; and the percentage of distressed sales.

California benefitted from being both a non-judicial and nonrecourse foreclosure state. Even though the state’s foreclosure rate skyrocketed in 2007-2009, the settlement process appears to have worked out troubled mortgages faster than other areas that were hit hard by the Subprime implosion.

  • All of Forbes’ New Foreclosure Capitals (see list below) are in judicial states, in which foreclosure actions require court proceedings. In non-judicial states foreclosure actions can be handled by attorneys according to a state-dictated process.
  • In non-recourse mortgage states, borrowers are not liable for more than the home’s value at the time of foreclosure. In recourse states, after a foreclosure lenders can pursue borrowers if the foreclosed property sold for less than the amount owed the lender by filing suits, garnishing wages, levying bank accounts. Theoretically, in nonrecourse states troubled borrowers will more readily submit to foreclosure actions because of the limited liability incurred.

The settlement of the robo-signing scandal early in 2012 led to a new wave of foreclosure actions, particularly in judicial states.

“So while foreclosures in hard-hit states where the process is less rigorous — like California, Nevada, and Arizona — have actually been decreasing, judicial states like Florida, Ohio and Pennsylvania, are facing an onslaught of new filings.”

(read the article)

Judicial States: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin

Non-Recourse States: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington.

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Growing Up

California could be sitting pretty according to the Motley Fool’s The Most Important Numbers of the Next Half Century which says “Age distribution is hardly the end-all driver of future growth, but it plays an important role.”  The article attributes much of Japan’s economic stagnation to demographic trends,

“Japan’s aging population has created a demographic brick wall that has kept economic growth low for the last two decades, and will likely worsen for more to come.”

It goes on to compare the population shares of the working age and the over-65 cohorts of the leading industrial economies in 2012 and 2050 (see tables from the article below to which I added California data).

The U.S. economy looks relatively good in 2050 with “one of the lowest percentages of elderly citizens, and one of the highest rates of working-age bodies among large economies.”   If this is the case, then based on the most recent projections of the Department of Finance, California will be in slightly better shape in this regard than the nation as a whole as well as the other leading economies mentioned.  Of course, this doesn’t mean that there aren’t other states whose populations will outgrow California over the next several decades.

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New Lots

The Smart Growth vs. Green Field development debate is once again raging around California. The nascent home building recovery has renewed the debate about which approach local development officials and home builders should follow to satisfy resurgent home demand.

A recent Sacramento Bee article, Our New Lots in Life by Francesca Lyman, frames this debate nicely and shows how it applies to the Sacramento real estate market.  This debate has significant statewide implications though as job growth has been strongest in regions that have the most significant barriers to new home construction.

According to Gerd-Ulf (GU) Krueger*, a leading California home building expert,

“Cities are probably going to miss this extraordinary historic opportunity to capture the demand for infill.”

Proponents of Smart Growth claim that demographic trends and high gas prices are stimulating more interest in urban living.

“There’s just no culture like there is here, in city neighborhoods like midtown…”

Green Field adherents, though, maintain that the default choice of most Americans is for a place in the suburbs and that once the millennial generation starts raising families, the attraction of urban living will fade.

“Surveys of housing preferences consistently show that if given the choice, most Americans, particularly families, will still opt for a place with a spot of land and a little breathing room,” writes [Joel] Kotkin”

(Read the article)

Take a video tour of Capital Village in Rancho Cordova by appraiser Ryan Lundquist ( http://lundquistcompany.com/).

*GU Krueger s the principal economist and founder of KruegerEconomics, a housing and economic advisory firm for institutional investors, developers, builders, and state and local governments.

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