California’s economic condition is a study in disparity, with corporate earnings booming at the same time that the jobless rate far exceeds the national average and the housing market remains deeply disturbed.
The report by the Legislative Analyst’s Office, prepared as a look at governor’s proposed 2012-13 budget, offers much more than numbers crunching. It provides a look at corporate California’s fiscal vitality while a painful economic malaise affects homeowners, workers and others. The complete report can be seen here.
“Despite persistent challenges that remain for the construction sector and some other businesses, aggregate corporate profits continue to grow sharply,” the report noted. “This trend is exemplified by a California-based firm – Apple, Inc. – that recently reported profits of $1 billion per week during the most recent fiscal quarter and now ranks as the most valuable company in the world.”
Another Silicon Valley behemoth, Facebook, is likely to go public, a move that could translate into $2 billion or more for the state’s beleaguered treasury, which faces a $9.2 billion shortfall, although that figure could prove elastic depending on whether the economy expands or weakens.
Not all companies are in the same league as Apple or Facebook, but the latter’s “IPO and the IPOs of other California technology companies are likely to generate substantial capital gains and other income for a small number of Californians and, in so doing, generate additional state tax revenues over the next few years.”
Despite oft-repeated assertions – particularly among Republicans in the Legislature and Congress – that California is hostile to business, the LAO reports that national business fixed investment in California rose 8.6 percent last year, in part because of pent-up demands stalled by the recession for machinery, software and equipment. Commercial real estate was weak, however, with high vacancy rates for office space and scant expansion preventing “the commercial real estate market from improving much of late.”
A critical type of business fixed investment – investment in software and computer systems – expanded by 10.3 percent last year. “These investments are especially important to California’s economy, which relies heavily on the professional and technology services sectors for high-wage employment growth,” the LAO noted.
Meanwhile, the outlook and track record for employment and housing are not so rosy. At the end of the year, the jobless rate in California was 10.9 percent, about some 2.5 percent higher than the national average. Some 2 million workers were unemployed in the state.
The median single-family home sale price, calculated in 2011 dollars, was about $300,000 at the end of last year, about half of level of 2006, and just a third more than the median price was 37 years ago.
One impact of the recession is to delay so-called “household formation,” in which young people move out of their parents’ home to get housing or when people who share housing move into their own units. The delay has depressed the housing market still further. Those who do move out or find separate housing are inclined to rent apartments – house purchasing is a move that requires credit, steady income and employment, all of which are more difficult to maintain in a recession – and that leads to multi-unit construction.
Indeed, in the decades that the LAO has tracked data, 2011 was the first year that multi-family dwelling construction exceeded single-family home construction.
Foreclosures, which spike three years ago, remain high. Some 155,000 foreclosure proceedings were instituted in California during 2011, but that number may be weighted downward, the LAO noted, because “some lenders may have withheld foreclosure notices during the 16-month investigation leading up to the recent ‘robo-signing’ foreclosure settlement” that California and a number of other states signed.