Could exports lead California out of the recession?  There is at least a glimmer of hope in a an analysis of federal trade data by the University of California Center Sacramento.  According to a report in the Los Angeles Times, The $10.3 billion in goods shipped abroad in January represented a 18.5% increase over the $8.7 billion recorded during the same month last year. The products shipped by land, sea and air included high-end, top-value items such as civilian aircraft engines and parts. They also included low-value bulk, such as scrap metal and paper that will become the raw materials for new goods manufactured in Asia.  “We are now just getting back to the level of exporting we were at in early 2007, before the global financial and economic crisis sent international trade spiraling down,” said Jock O’Connell, the UC center’s international trade and economics advisor. 

Sony Pictures Entertainment Inc., based in Culver City, will be laying off about 450 people and eliminating 100 open positions to cope with declining DVD sales. Most of the cuts at the studio will occur by the first week of March and will be in the home entertainment and information-technology units in the United States.

The company, a subsidiary of Japan’s Sony Corp. also cut back last March, when it laid off nearly 250 people and eliminated nearly 100 open positions. Company staff was informed of the latest cuts in a memo Monday and through videos by the studio co-chairs on an employee Web site. “Our industry is affected by two things: It’s affected by the economy, of course, and it’s affected by technology,” co-chair Amy Pascal says in the video. “Over the last two years, it’s changed people’s DVD buying habits, which has had a huge effect on our company and the industry at large.”

The home video market has been declining as people have not been buying videos as often, and instead turn to rentals, which are far less profitable for the industry.

The UCLA Anderson Forecast for the third quarter of 2009 has just been released, and says that while this huge recession may have ended, unemployment will stay in double digits and the “negative impact of the downturn will last well into the next decade”. Unemployment going to get worse and is expected to rise to 12.7 percent in the fourth quarter of 2009. Though the economy will be growing in 2011, it will not be generating enough jobs to drive the unemployment rate below double digits until 2012. Economist Jerry Nickelsburg called the unemployment situation “ugly” and will remain so for some time to come. “More rapid growth than can be expected over the next twelve months would be required to bring the unemployment rate down,” he said.

There is one possible silver lining in all these dark clouds, however – exports may be improving. According to Nickelsburg, “In trade and manufacturing, there is new evidence that demand for California-produced goods is increasing. He believes that the keys to the California recovery are exports of manufactured and agricultural goods, a recovery in U.S., increased public works construction and increased investment in business equipment and software.

California was the second-largest loser of manufacturing jobs — 123,400 — over the past year, according to the U.S. Bureau of Labor Statistics. Only Ohio lost more more jobs than the Golden State: 127,000. A report by the Milken Institute released earlier this summer reached a similar conclusion, but noted that the state is hemorrhaging high-tech manufacturing jobs at an even higher rate than in traditional manufacturing industries. California’s employment in this high-wage, high-skill segment is down 23 percent from 2000 levels, as opposed to declines nationally of 19 percent and the peer states’ average of 16 percent. In fact, from 2003 to 2007, encompassing the recovery of the high-tech sector, the peer states gained 24,000 high-tech manufacturing jobs while California lost almost 16,000.

“Widespread misconceptions about the manufacturing sector in California are part of the problem,” said Perry Wong, senior economist and one of the authors of the report. “People don’t understand that manufacturing is an integral part of the high-tech and clean-tech economy. If Californians want to build the future economic recovery on high-tech and retain highly skilled workers, they have to address the underlying issues of this sector now.”

Los Angeles was the nation’s biggest loser in employment during the past 12 months, according to figures released by the U.S. Bureau of Labor Statistics. The Los Angeles area lost 240,100 jobs between July 2008 and the same month this year, the biggest decline in raw numbers anywhere in America. The second biggest losers were the Chicago and New York City markets with losses of 206,200 and 157,900 jobs, respectively.

California’s unemployment rate climbed to 11.5 percent in May, the highest in modern record-keeping, the U.S. Department of Labor has reported. Last month, California lost 68,900 jobs, and in the past 12 months a staggering 739,500 jobs have disappeared from the state. If you include part-time workers seeking full-time work plus workers who have given up looking for traditional employment, the jobless rate could be as high as 25 percent, exceeding the national unemployment levels in the worst part of the Great Depression. Economists project that the layoffs will continue to rise at least through the end of this year and probably into 2010, even if the economy starts to recover.

Most of the cutbacks came from government: 11,400 job cuts in federal government and 2,800 from state and local agencies, as municipalities scaled back their services to cope with the crippling effects of tax declines and budget cuts. Adding to the decline in government employment, every major job category lost jobs in May except for education and health care, which added 2,100. Construction companies cut 11,300 positions; manufacturing, 10,400; professional and business services, 10,900; retail, wholesale, transportation and utilities, 8,300; leisure and information, 8,100; and hospitality, 2,700.

As shocking as these numbers are, what is even more shocking is that the State Government doesn’t seem to be doing anything about it, as they are mostly concerned with their own survival. Early indications are that the Obama administration stimulus money is going mostly to save the jobs of existing State workers and bureaucrats, who are already doing relatively well. Very little of the funding seems to be going into job creation, economic development or innovative programs to help small business.

The Obama administration has refused requests for emergency assistance from senior State government officials. Calling California, “one of the biggest remaining threats to the economy” the Washington Post reported that top state officials have gone hat in hand to the administration, armed with dire warnings of a fast-approaching “fiscal meltdown” caused by a budget shortfall. Concern has grown inside the White House in recent weeks as California’s fiscal condition has worsened, leading to high-level administration meetings. But the Post reported that federal officials are worried that a bailout of California would set off a cascade of demands from other states. The administration is also concerned that California will enact massive cuts to close its deficit aggravating the state’s recession and further dragging down the national economy. After a series of meetings, Treasury Secretary Timothy F. Geithner, top White House economists Lawrence Summers and Christina Romer, and other senior officials have decided that California could hold on a little longer and should get its budget in order rather than rely on a federal bailout.

California’s ports are getting quieter and the state’s huge export slump is getting worse. According to a report in the Sacramento Bee, exports from California fell 25.5 percent in April from a year earlier, figures compiled Wednesday by Sacramento trade consultant Jock O’Connel reveal. The shipments from California’s ports, totaling $9.25 billion, represent the worst April in four years. Earlier this year, exports were falling at about a 20 percent rate. O’Connell said the new figures show a turnaround is a ways off despite signs on the national level that the economy might bottom out soon. O’Connell told the Bee that the export decline was widespread. The volume of cargo leaving the ports of Los Angeles and Long Beach was off 18 percent. Exports from San Francisco International Airport fell 34 percent. For the state, April marked the sixth straight month of declining exports. O’Connell added that imports at California’s ports fell 28.5 percent, demonstrating the global spread of the recession.

The Sacramento business journal is reporting “huge” demands for California bonds: Investors were more enthusiastic about buying California debt than expected, putting in orders for $6.54 billion in general obligation bonds in a sale by the state Treasurer’s Office that ended Tuesday State officials had expected to sell $4 billion. The extra cash will allow officials to restart more stalled projects that were halted in December due to the state’s cash crisis. Treasurer Bill Lockyer’s office said there was “huge” demand from both individual investors and institutional buyers such as mutual funds. Officials have not determined which of 5,300 halted projects should be allowed to proceed. Until this sale, the tight credit market and the state’s prolonged budget crisis kept California out of the bond market for nine months.

The UCLA Anderson Forecast, an economic think tank, has linked the current national recession to slumping international economic conditions that will impact the timing and pace of any national recovery. The Forecast asserts that a turnaround in the U.S. economy depends upon a recovery in world trade. The report also states that regardless of the steps taken by the U.S. government, national solutions will not be enough to restore growth and therefore global solutions are essential. In California, it’s forecasted that the economy will remain in turmoil for the foreseeable future as the twin sector engines of consumers and construction continue to drag, according to a press release that summarized the report.
More on UCLA Forecast says National Recovery depends on World Trade

California came in dead last in a national ranking of the best states to do business, according to Chief Executive magazine. Finishing just ahead of California in the 2009 rankings were New York, Michigan, New Jersey and Massachusetts. Texas was ranked first.  The magazine evaluated states on natural resources, regulation, tax policies, quality of living, education and infrastructure, among other categories. Chief Executive magazine said states that perform well in the rankings tend to have lower taxes and little unionization. California ranked 48th in “cost of business” and “business friendliness.”

The Wall Street Journal ran an article describing how thing might be getting pretty rough here:

As Sacramento squabbles over the state’s $42 billion deficit, Californians are getting a bitter taste of what’s to come after the steep budget cuts that are inevitable when legislators and Gov. Arnold Schwarzenegger finally hammer out a deal… “Before it gets better, it’s going to get a lot worse,” said Joseph Valentine, director of Contra Costa County’s Department of Employment and Human Services. The department, which administers social services such as food stamps, has cut 12%, or $25 million, of its budget. It has managers answering reception-desk phones, and Mr. Valentine expects another round of cuts… While Sacramento talks, money is drying up in places like Contra Costa County, where 40,000 families have applied for 350 available slots for Section 8 vouchers — a federal subsidy that allows low-income families to rent in the private market. “The level of desperation is just heartbreaking,” said Joseph Villareal, executive director of the Contra Costa Housing Authority.

Forbes has called the Central California city of Stockton, “America’s Most Miserable City” in a ranking of the 150 largest metropolitan areas in the U.S:

Stockton ranks in the bottom seven in four of the nine categories we looked at: commute times, income tax rates, unemployment and violent crime. Only New York City has a higher income tax rate than what Stockton, and all California residents, are forced to pay.  Stockton was ground zero for the housing boom and now the subsequent bust. Home prices more than tripled between 1998 and 2005 and then came crashing down last year. Stockton had the country’s highest foreclosure rate last year at 9.5%, according to RealtyTrac, an online marketer of foreclosed property. Things are not looking much brighter in 2009 as housing prices are expected to fall another 36% on the heels of a 39% drop in 2008. Also, unemployment is expected to jump to 13.3% from 10.4%, according to economic research firm Moody’s Economy.com.

Stockton’s Mayor Ann Johnson, however, sounds like she is making a sincere attempt at leadership:

“We are engaging the entire community and encouraging everyone to get involved and help us find solutions that meet the needs of our community,” says Stockton Mayor Ann Johnston. “Volunteerism is encouraged, looking out for your neighbor, and taking personal responsibility where individuals can make a difference. We are partnering with all community organizations–schools, churches, non-profits– to provide support services and help individuals and families get through these difficult times.”

California has the lowest credit rating in the country after Standard & Poor’s cut its general obligation bonds one grade because of a record budget deficit, according to a report in the San Jose Business Journal we are now in worse shape then even hurricane ravaged Louisiana:

New York-based S&P said Tuesday it lowered the state’s $46 billion of full-faith-and-credit debt to A from A plus. The move bumps California down; it was previously tied with Louisiana. Gabriel Petek of S&P’s San Francisco office said the lowered rating “reflects our view of the state’s inability to reach an agreement on a mid-year budget revision and its rapidly eroding cash position.” California has had to delay $3.7 billion in some payments — including income tax refunds — because of the budget impasse.

The State Employment Development Department announced that California lost 78,200 jobs in December and the unemployment rate is now 9.3 percent – the highest rate since 1993. About 1.7 million Californians were looking for work last month — up by 166,000 since November and up 653,000 since December 2007.  Some 785,200 were laid off, while 125,300 chose to leave their job. The rest were either temporarily employed or new job seekers.  he construction sector accounted for the most job cuts over the past year- 92,600 positions, a 10.8 percent annual drop. The latest job figures followed a revised loss of 73,500 payroll jobs in November. That means California has lost nearly 152,000 jobs in the last two months.

The state of California has run out of money.  Facing a $42 billion budget deficit, State Controller John Chiang told the Sacramento Bee he has already borrowed $21.5 billion to try to cover the state’s checks, but by Feb. 1, there will be no more options left but to simply stop paying some of the bills – including tax refunds, welfare checks, student grants and other payments owned to California citizens.  “It pains me to pull this trigger,” Chiang said at a news conference. “But it is an action that is critically necessary.”  Federal law requires that many school and healthcare programs – a total of about $6.6 billion in California so Chiang has announced an expected payment freeze on $3.7 billion worth of the state’s bills, most of it refunds owed to taxpayers.   Even with the freeze beginning next week, the Los Angeles Times reports, California will still fall $346 million short for the month of February, forcing Chiang to consider issuing IOUs – something only done once since the Great Depression.

As reported in the San Francisco Chronicle, the retail industry in California is in for some very difficult times:

After years of aggressive expansion fueled by easy debt and plastic-wielding customers, the industry is in for a major correction in 2009, analysts predict. The shift could recast much of the Bay Area retail landscape, blighting shop-lined streets with boarded storefronts, clearing out shopping centers and doing in struggling malls.
After one of their worst holiday seasons in decades, few retailers are in expansion mode and few banks are eager to hand stores cash, so much of the space is likely to sit empty for the foreseeable future. That will place considerable pressure on landlords – especially those who bought or developed buildings near the top of the market.
More on Severe retail downturn forecast for 2009

As the California economy continues to deteriorate, low- and middle-income Californians are finding it increasingly difficult to make ends meet, according to a report released Monday by the nonpartisan California Budget Project.

They are turning to public programs in growing numbers — at a time when state policymakers have proposed deep cuts to health and human services programs to close the state budget gap. The number of food stamp applications jumped 33 percent between September 2007 and 2008, but rising food prices mean the assistance doesn’t go far enough. The number of families on welfare cash assistance grew by almost 27,000 over the same period.
A Democratic budget proposal would suspend a cost-of-living increase for cash assistance for welfare recipients to save $100 million. A Republican counter proposal would cut the COLA, limit eligibility for assistance and cut cash grants by 10 percent, for a savings of $1 billion.

“We are at a time of extraordinary stress not only on our (state) budget, but on California families,” project director Jean Ross said in a press call reported by the San Jose Business Journal. Not only are more individuals and families applying for assistance, a “very different type of family” historically a couple of steps up the income ladder is asking for help because of rising food costs and rising unemployment, she said. The current budget proposals will put more families at risk, Ross said. “Every dollar that doesn’t go to a family doesn’t go out into the local economy.”

The UCLA Anderson Forecast, an economic think tank, has issues a bleak forecast for the California economy. The only consolation, the Anderson Forecast is often wrong, but if they are right this time there could be some very difficult times ahead – as the forecast says: “There are no bright spots on the horizon”. As reported in the San Francisco Chronicle: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/12/11/BUAP14LM9N.DTL

The recession that has already devastated the Central Valley has started to hurt the Bay Area, causing job losses that will continue through 2009 when the economy should begin a slow and weak recovery, according to a bleak forecast issued today.

“There is no suggestion in the data that we are near that bottom,” was the somber message of the UCLA Anderson Forecast, a quarterly look at the state economy conducted by the university’s business school.

It was with some humility that UCLA economists issued this report, predicting high unemployment through 2010 as the state gradually recovers from the housing bubble. In recent quarterly forecasts they had suggested the state might dodge the recession. But forecast Director Edward Leamer said the financial crisis that erupted in September and October had “unleashed a tidal wave of fear” that caused spending and investment to collapse, confounding all the forecast’s expectations.

“When you do forecasting you look at historical trends and try to project how they might play out,” Leamer said. “But nothing such as this has ever happened. Everybody is relying on hunches.” Now the forecast projects that California will continue in recession until the third quarter of 2009 when economic growth is expected to slowly resume and pick up steam throughout 2010.

The forecast projects that the statewide unemployment rate, currently 8.2 percent, could approach 9 percent next year and stay near that level for some time. Even after output and sales begin to recover late in 2009, the forecast does not anticipate the job market to rebound quickly. Unfortunately, 2009 will be a year of job losses and in 2010 payrolls will be flat,” said UCLA Anderson economist Jerry Nickelsburg.

As Nickelsburg explained, employers now use temporary and contract labor to handle the uptick in sales that signals the end of a recession. This has given rise to what is called a jobless recovery and California should expect that pattern with this downturn.

Nickelsburg said the recession has struck different parts of the state with varying severity. “The inland areas have been hardest hit by the housing downturn and are being hardest hit by the pullback of the retail and the wholesale sectors,” he said. “Here you’re talking about areas of the East Bay and the Central Valley.”

The trade, tech and tourism economies of Los Angeles, Silicon Valley and San Francisco have been less affected so far but will be dragged down by what is now recognized as a global recession. “Imports flowing through U.S. ports will continue to decline, and recessions in Europe and Japan mean the export demand for California manufacturing will be muted,” the forecast says.

Tourism, so important to San Francisco, is also being undercut by the global recession. “Foreign tourism to California will diminish in the 4th quarter and is not expected to come back before next summer,” says the forecast, predicting job losses in the hospitality sector “to continue into 2010.”

Amylin Pharmaceuticals will lay off 340 employees in San Diego, a decision expected to save the company more than $100 million. fter the job reduction, Amylin will have 1,800 employees, about half of which will be in San Diego.   Amylin says its priorities are to increase sales of Byetta and Symlin — its product for Type 1 diabetes.