CALIFORNIA FOCUS
FOR RELEASE: TUESDAY, AUGUST 23, 2022 OR THEREAFTER
BY THOMAS D. ELIAS
“THE COMING
ECONOMIC DIP: NOTHING LIKE THE LAST ONE”
California’s
economic Jeremiahs regularly predict an imminent major economic downturn, some
saying it has already begun. The reality, though, is that while a dip is
likely, it will not do a fraction of the damage inflicted by the last similar
hit to this state.
That one
came in the late spring of 2020 and saw unemployment here leap from 4.1 percent
to 15.9 percent in just two months as businesses by the thousands shut down
amid hordes of layoffs in the worst days of the COVID-19 pandemic.
But
California rebounded swiftly once vaccines became available and both
hospitalizations and deaths from the virus dropped considerably. As the state
heads into what might be a new downturn, unemployment levels are back to just
about the same as pre-pandemic and California seems well situated to make this
a fairly brief decline, far short of a major disaster – unless it’s your
business that’s hurting as the perpetual economic roller coaster heads downward
for a bit.
For sure,
even though the state budget has a rainy day fund in the tens of billions of
dollars at the ready, there are signs of trouble, although that could be eased
if President Biden’s compromise recovery plan gets through Congress.
Oracle
Corp., whose headquarters moved to the tax haven of Austin, Tex. when its
founder Larry Ellison relocated fulltime to the Hawaiian island of Lanai, has
already laid off hundreds of workers in Silicon Valley, its former headquarters
and still home to most of the gigantic software company. Oracle will reportedly
lay off more droves in Texas, Canada, India and Europe amid a $1 billion-plus
cut in expenses.
If that
weren’t enough of a sign that Silicon Valley is not immune from national and
international economic crises, Google paused hiring in late July and Facebook
parent Meta reported its first-ever yearly revenue downturn. Plus, many
high-tech startups recently stopped hiring or made layoffs.
At the
same time, the year seems to be seeing a drop in capital gains for Californians
invested in stocks. Hints of this can be found in a report from the nonpartisan
state legislative analyst’s office, which reports California may collect as
much as $25 billion less in capital gains taxes than expected when the current
$308 billion budget was adopted in June.
Rising
inflation and higher interest rates, along with supply chain issues, are
identified by state budgeteers as the major current bugaboos.
Said Gov.
Gavin Newsom, in opposing Proposition 30, a November ballot initiative seeking
to raise taxes on anyone with income over $2 million per year, “California’s
tax revenues are famously volatile, and this measure would make our state’s
finances more unstable.”
Another
sign of a likely downturn: Inflation has led to rising rents here and
nationally; while real estate sales prices are down slightly this summer, rents
are not dropping.
This is
not only a California problem: Yahoo Finance predicts there will be no letup in
rent increases nationally until at least 2024. That’s partly because most home
and condominium owners who paid high prices in recent years are so far not
inclined to sell at today’s slightly lower levels. That has led to a drop in
available housing stock – from here to New York to Tennessee, North Carolina
and Florida – which in turn means more demand for rentals. That makes
widespread rent decreases extremely unlikely.
At the
same time, the national Consumer Price Index – the most watched indicator of
inflation – reached a 43-year-high this summer, almost matching levels of the
late 1970s, when Jimmy Carter was president.
The good
news is that most Californians have also seen their earnings rise, especially
because of increases in the minimum wage. That baseline figure will reach
$15.50 per hour in January. The new cash flowing to even the least skilled
workers makes Californians better equipped than ever to cope with inflation.
All
theserealities explain why there has been no great drop in retail sales even as
inflation and other indicators of a downturn appeared. All of which points to a
dip, but nowhere near as severe as what this state endured just over two years
ago.
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