News Column

Slowing U.S. Economy Has Ripple Effect In California

June 4, 2012

Dale Kasler

Los Angeles, Calif.

The U.S. economy is unmistakably slowing down. What isn't clear is how much that will hurt California's recovery.

The latest evidence of the nation's economic doldrums came with the monthly U.S. Labor Department report Friday. National unemployment rose a tenth of a point in May, to 8.2 percent. Employers added 69,000 jobs, about half of what was expected.

Making matters worse, payroll growth previously reported for March and April was revised downward substantially. About 49,000 jobs total were erased.

California economist Sung Won Sohn said the United States is mainly suffering the consequences of slowing economies in China and Europe. "External forces are hurting the American job picture," said Sohn, a professor at the California State University, Channel Islands, campus in Camarillo.

The news sent the stock market tumbling to its worst trading day of 2012. The Dow Jones average fell 274.88 points, to 12,118.57, erasing all the gains made since Jan. 1.

From Washington, D.C., to Sacramento, politicians and business people were digesting the discouraging news.

"I'd like to believe we're on the road to recovery," said Fair Oaks real estate agent Steve Galster. "You know there's going to be some bumps, (but) every bump scares you."

Presumptive Republican presidential nominee Mitt Romney was less charitable. He called the jobs report "a harsh indictment of the president's handling of the economy."

President Barack Obama, blaming high gas prices and the European economy, said, "We knew the road to recovery would not be easy. We knew it would take time."

The U.S. slowdown is likely to take some of the edge off California's job growth, which has lowered the state's unemployment rate to 10.9 percent. One of California's top-performing sectors, exports, is already seeing the effects of the troubles engulfing China, Europe, Brazil and other key trading partners.

"We're really seeing a flattening out of the export trade from California," said Jock O'Connell, an adviser to Beacon Economics consulting. "That's not buoyant news for the employment numbers."

Still, economists don't believe the bottom is dropping out of the economy, in California or across the nation.

"I don't see any signs of another recession," said Los Angeles economist Chris Thornberg, Beacon's principal.

"It's not terrible news," he said of the latest jobs report. "It's very not-good news. Terrible news would be where we're losing jobs."

This isn't the first time the national recovery -- officially 3 years old but never particularly robust -- has hit a rough patch. Last year's Japanese tsunami and earthquake disrupted manufacturing supply lines and hurt U.S. growth.

Thornberg said he believes the recovery will gain some momentum. But for now, he said, "we're still slogging through economic quicksand."

Despite problems at the national level, Sohn said California should benefit from the booming technology sector and the fledgling recovery in the housing market -- two of its most vital industries.

There's growing evidence that housing has bottomed out in California and should be "a source of strength," Sohn said.

That appears to be true even in the Sacramento area, where job growth has been among the weakest in the state. Prices of single-family homes have risen in Sacramento County for four straight months, according to market researcher DataQuick. Foreclosures are down sharply from a year ago.

"We have an enormous backlog of buyers," said Galster, the real estate agent in Fair Oaks. "It's the most positive sign we've seen in so long."

In fact, the biggest obstacle right now is a lack of inventory, said Galster, of Weichert Realtors Galster Group.

But Galster remains worried about the economy in greater Sacramento. Among other things, Gov. Jerry Brown's proposed 5 percent pay cut for most state workers could damage the housing market.

"With pay cuts coming, that could impact some families," he said.

And Sacramento's economy, like the median price of a home here, is still far from full recovery. Even though unemployment dropped a full percentage point last month, to 10.5 percent, job growth has been mostly anemic. There are 100 fewer Sacramentans holding payroll jobs than a year ago, according to the Employment Development Department.

Jeff Michael, an economic forecaster at the University of the Pacific, said the national slowdown isn't good news for Sacramento.

"It's just another sign that the recovery just can't pick up momentum -- we've seen that around here," he said. "It's always been a two-steps-forward, one-step-back pattern. This is more of the same."

Source: (c)2012 The Sacramento Bee (Sacramento, Calif.)

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