The Department of Finance released its October 2012 Finance Bulletin which includes the following review of the latest economic indicators for California.
Job growth and better real estate conditions showed that the California economy continued its gradual recovery. In September, California added jobs for the fifth consecutive month, but the pace of employment gains moderated from mid-year. In August, existing home prices rose amid tighter inventories.
Labor Market Conditions
- In September, the state added 8,500 nonfarm jobs and August’s initially reported gain of 12,000 jobs was revised down to 5,100. Private employment increased 14,900 in September following gains of 12,600 and 20,000 jobs in August and July, respectively.
- Industry job gains in September were led by leisure and hospitality (10,700), followed by information (5,900), education and health services (4,800), trade, transportation and utilities (3,100), professional and business services (2,100), and financial activities (1,700).
- Five industry sectors lost jobs in September, led by government which fell by 6,400. Manufacturing lost 5,900 jobs; construction, 3,600; other services, 3,400; and mining and logging, 500.
- Employment grew by 262,000, or 1.9 percent, from September 2011 to September 2012. Private sector employment grew faster—increasing by 303,100 jobs, or 2.6 percent, over the year. Nationally, private payrolls expanded 1.7 percent.
- Seven industry sectors added jobs over the year. Employment rose 88,000 in professional and business services; 62,800 in leisure and hospitality; 56,300 in educational and health services; 38,800 in trade, transportation, and utilities; 25,700 in construction; 25,700 in information; and 22,300 in financial activities.
- Over the year, employment fell by 41,100 in government; 11,000 in manufacturing; 5,400 in other services; and 100 in mining and logging.
- In September, California’s unemployment rate dropped to 10.2 percent from 10.6 percent in August, which reflected a similarly large drop in the national unemployment rate in September. The number of people unemployed in California fell 59,100, while the number employed increased 52,600.
- Sales of existing, single-family detached homes totaled 511,240 units at a seasonally adjusted annualized rate in August. Even though this was a modest slowdown from July, the pace of existing home sales during the three months ending in August was up 8.5 percent from the same months of 2011.
- The median price of existing, single-family homes sold in August was $343,820, up 15.5 percent from a year earlier. This was the highest statewide median price since August 2008.
- Home prices have been boosted by low inventories and a decline in distressed sales. The California Association of Realtors’ unsold inventory index decreased slightly to 3.2 months in August, down from 5.2 months a year earlier. The median number of days needed to sell a home dropped to 41.1 days, down from 52.5 days in August 2011. Non-distressed property sales comprised 62.2 percent of total sales in August—its highest level in four years.
James Hamilton at Econbrowser explains the recent 50 cents a gallon spike in California gasoline prices.
- California prices are usually 30-40 cents a gallon higher than the rest of the country
- About 20 cents is due to higher gasoline taxes
- Much of the rest is due to the use of higher quality gasoline to reduce air pollution
The latest spike had several causes.
- The fire at the Richmond refinery in August
- The closure of Kettleman-Los Medanos pipeline due to contamination
- A power outage that shut down ExxonMobil’s Torrance refinery in Los Angeles.
Price volatility is also significantly greater in California because it requires a different blend to meet air quality standards and the California oil market is relatively isolated (see map below).
(Read the article)
It has been noted that a “manufacturing renaissance” is underway in the US. National manufacturing employment has been gathering steam since the final months of 2010. During the first eight months of 2012, manufacturing employment was up 1.9 percent from the same months of 2011—outpacing overall 1.4 percent employment growth. Unfortunately, California hasn’t shared in this—manufacturing employment over the same period actually dropped slightly. The Golden State did, though, outdistance the nation by a healthy margin in the lucrative information and professional services industries.
According to a variety of surveys and studies, California faces many challenges in attracting manufacturing enterprises. Recently Andrew Chang & Company, LLC at the behest of the California Manufacturers and Technology Association conducted a national survey of key decision makers at 100 manufacturing companies across the U.S., such as CEOs, CFOs, and COOs who were involved in site selection processes. The 2012 Business Expansion and New Site Survey sought insights into the criteria used to make expansion decisions and to learn why some choose to invest in California and why others went elsewhere.
This study focused exclusively on manufacturers. It would be nice to couple these findings with a similar survey of service providing firms, particularly those in high value-added professional service industries that California specializes in. More information about the industries and facilities the respondents represented would also provide more insights. Is California more or less attractive to all manufacturers? With high population concentrations in key regions and high land costs, California is at a fundamental disadvantage when competing for businesses that need abundant space and low cost labor. When space needs are limited and high value labor skills are needed, the Golden State typically fares better.
Some of the key findings include;
- California accounted for only 2.2 percent of national manufacturing expansions and new sites in 2011.
- 82 percent of the companies surveyed did not consider California when expanding or opening a new facility. Many of the reasons companies gave for not considering California … included a costly and complicated tax system, a poor regulatory environment, high labor costs and a lack of incentives and credits.
- The most mentioned factors that influenced decisions of where to expand were proximity to customers, amount of incentives/credits offered by the state, the cost of labor, proximity to suppliers and the tax system.
- Many of the companies that decided to stay in California were small businesses that chose to stay because of strategic drivers (i.e. proximity to existing facilities, geographic location or personal preference).
- In order for companies to stay and/or consider California the next time they expand, respondents stated that policy makers need to increase incentives and credits, improve the regulatory environment and make the tax system less costly and complicated.
(Read the complete survey)