“Fallout in the U.S. subprime mortgage market could spread to related markets, the International Monetary Fund warned on Tuesday, as nagging worries about housing helped weaken the dollar… The IMF said in its semi-annual Global Financial Stability Report that a decline in the subprime market was more rapid than expected at this point in the overall housing downturn. Looser underwriting standards may have gone beyond the subprime sector into portions of “Alt-A” mortgages, the next-riskiest area, the IMF said. In addition, there could be losses in other consumer credit markets, including credit card and subprime auto loan asset-backed securities, it said. ‘Financial supervisors need to identify the potential for spillovers from the cooling of the housing market and continue ensuring that mortgage underwriting standards are maintained,’ the IMF said.”

Even for Democrat-leaning “blue” California these numbers are shocking. The Survey and Policy Research Institute at San Jose State University has just released a survey that shows President Bush has only a 23 percent approval rating and fully 72 percent of California voters disapprove of the job he is doing. While the Iraq War is a big part of the picture, the distrust of the President is much deeper and go to personal characteristics. A full 64% of Californians do not believe the President tells the truth versus only 28% who believe he does. Only 9% of Democrats and 15% of independents think he is telling the American public the truth. Governor Schwarzenegger, by contrast, remains relatively popular with approval ratings of 62% of California voters, slightly down from the last survey in January. The poll also found that Californians say the most important issue facing the state today is immigration (19%), followed by jobs and the economy (13%), and education (12%). Fewer mentioned health care (9%), gasoline prices (7%),or other issues. In addition, Californians have grown more pessimistic about the state’s economy for the coming year. Half of all adults (51%) now think bad economic times are to come. In January, only 39 percent of all adults expected bad economic times.

“In its first quarterly report of 2007, the UCLA Anderson Forecast remains steadfast in its belief that the national economy does not face recession, though the group’s economists concede that length of the current, below trend growth period leaves them “increasingly nervous.” The Forecast in particular notes that, “ … the credit crunch in the subprime mortgage market will likely trigger a second leg down in the housing market in terms of output and prices.” The Forecast asserts that the slowed economy may well endure longer than previously expected, but that better-than-expected consumption, a “less-negative” trade sector and at least two and possibly three rate cuts will keep Gross Domestic Product (GDP) positive throughout 2007. In California – and in spite of some positive news in the form of revised employment revisions – the UCLA Anderson Forecast looks for a “significant slowing of the California economy in 2007, as the double-whammy from construction and mortgage finance creates drag on the rest of the (state’s) economy.” “

“The belief that political leaders will cope with the state’s and country’s problems is waning among Californians, according to a poll by the Public Policy Institute of California. Half of the adults polled say they think the state is facing rough economic times in the next year, up from 39 percent of those polled two months ago. And 47 percent of say the state is moving in the wrong direction, up from 37 percent. Mark Baldassare, president of the policy institute, said Wednesday that the waning confidence is a big change in a couple of months and ‘reflects anxiety about the stock market, the slowdown in the housing market, rising gas prices and concerns about possibility of home foreclosures due to subprime loans.’ Of the likely voters polled, 71 percent thinks a lot of the money paid through taxes is wasted by the federal government; 55 percent think the same thing about California’s tax money. Job approval for Gov. Arnold Schwarzenegger dropped to 56 percent from 61 percent earlier. The approval rate for the president has dropped to a new low of 29 percent approval.”

The California Employee Confidence Index dropped 1.5 points in February to 61.5, according to the latest Spherion(R) Employment Report. This recent survey of California workers, conducted by Harris Interactive(R) on behalf of Spherion Corporation, shows that fewer workers are confident in their ability to find a new job and in the future of their current employer. The survey also found that more workers were likely to look for a new job in the next year. “After rising to a new high in January, we saw the percentage of workers confident in California drop last month as fewer have confidence in their personal job situations,” explained Lauren Steel, territory vice president for Spherion. “This is somewhat surprising because workers of all skills and levels are in high demand, especially in the major metropolitan areas across the state”.

There were mixed trends in manufacturing in Southern California during 2006, according to “Manufacturing in Southern California,” which was released March 28 by the Los Angeles County Economic Development Corporation (LAEDC) in conjunction with the WESTEC Manufacturing Technology Exposition and Conference at the Los Angeles Convention Center. “Orange and Ventura Counties, and the Riverside-San Bernardino area all added factory jobs during 2006, which was counter to the national trend,” said Jack Kyser, chief economist, LAEDC. “However, Los Angeles County saw 9,400 factory jobs disappear from 2005 to 2006. Despite this, Los Angeles County was still the nation’s number one manufacturing center.Its 2006 manufacturing employment average of 462,300 jobs was well ahead of number two Chicago’s average of 390,200 jobs. Detroit remained in third place with 268,800 jobs.” The latter two areas also experienced job losses. The LAEDC report calculated that there were 911,000 manufacturing jobs in Southern California during 2006 (this region is defined as the Los Angeles five-county area plus San Diego County). “This would make the area the nation’s third-largest manufacturing ‘state,’ behind California (1,505,000 jobs) and Texas (926,000 jobs),” noted Kyser. “What are the implications of this large factory workforce,” asked Kyser. “This sector represents a huge market for all types of suppliers (goods and services) and means that local manufacturers can find inputs right in their backyard.”

“Sales of new homes fell for a second consecutive month in February, dimming hopes for a rebound soon in the troubled housing market and raising fears about the health of the overall economy. The Commerce Department reported Monday that sales of single-family homes dropped 3.9 percent last month to a seasonally adjusted annual rate of 848,000 units, the slowest pace in nearly seven years. The decline followed a 15.8 percent plunge in January, the biggest one-month decline in 13 years. The weakness in sales was accompanied by a drop in prices with the median price of a new home falling to $250,000 in February, down 0.3 percent from a year ago. The report was far weaker than Wall Street had been expecting and raised concerns that rising mortgage delinquencies and foreclosures, especially in the subprime market, would further depress housing activity in the months ahead as nervous lenders tighten their standards.”

“L.A.’s job picture brightened in February as the county gained 27,000 non-farm jobs, led by hefty increases in education, the information sector and professional and business services, according to state figures released Friday. The California Economic Development Department reported that L.A. County had a total of 4,107,600 non-farm jobs in February, up 27,000, or 0.7 percent, from January and 1.1 percent from Feb. 2006. The unemployment rate remained steady at 4.6 percent in February compared to January, but was still well below the 5.0 percent mark recorded in February 2006. More people entered the labor force and were able to find work last month.”

“Fremont General Corp. said Monday that it has notified all 2,400 employees in its sub-prime lending unit that they may lose their jobs by May 18. The Santa Monica-based lender did not specify how many of the 2,400 jobs would be eliminated, saying only that “many” employees have been put on paid leave. The embattled lender has been shopping the troubled unit but said it plans to exit the business whether it finds a buyer or not. ‘The company continues to aggressively pursue its options with respect to its business,’ Fremont said Monday in a statement. ‘Given the uncertainty of this situation and its impact on employment, the company has given notice of termination to these employees on leave’. “

“U.S. financial markets are likely to experience some fall-out from the subprime mortgage lending woes but they are likely to be limited, the chief investment officer at the biggest U.S. pension told Reuters on Monday. The subprime sector ‘is an important weakness in the economy and it is likely that there will be a measured impact in other sectors. And there is likely to be some contagion,” said Russell Read of Calpers, which invests about $232 billion for California state workers… Some of the other sectors that could be impacted were the high-yield bond markets where defaults are likely to creep up, Read said in an interview on the sidelines of a Council of Institutional Investors meeting. He added, ‘we are concerned but not worried.’…Calpers has little direct exposure to the subprime sector, Read said.”

“Stocks plunged Tuesday as Wall Street woke up to growing problems in the mortgage market and investors became concerned that those troubles might spread to other parts of the economy. The number of borrowers who fell behind on payments hit a 3 1/2-year high, driven by an increase in delinquencies among high-risk, or subprime, borrowers, according to a report from the Mortgage Bankers Association trade group. ‘For a long time, people have been saying that the problems in the housing market aren’t big enough to have an impact on the U.S. economy, and that’s bull,’ said Christopher Thornberg, an economist at the consulting firm Beacon Economics. ‘There are a lot of secondary effects on the economy and it’s not a pretty picture’. “

Excerpt from a Bloomberg report by Bob Ivry entitled: “Foreclosures May Hit 1.5 Million in U.S. Housing Bust”:

Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor. Financial stocks also could extend their declines over mortgage default worries.

The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing that the National Association of Home Builders in Washington now expects purchases to fall for the sixth consecutive quarter after it predicted a gain just last month.

“The correction will last another year,” said Mark Zandi, chief economist for Moody’s Economy.com in West Chester, Pennsylvania. “Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.”

A five-year housing boom that ended in 2006 expanded home- ownership to a record number of U.S. households. Now it has given way to mounting defaults, failing subprime mortgage companies and an increasing number of unsold homes.

Last Housing Slump. If this slump follows the same pattern as the last one, in 1991, it will persist for at least another year and may fuel a recession. New-home sales declined 45 percent from July 1989 to January 1991 and about 1 percent of all U.S. jobs, or 1.1 million, were lost in that recession, said Robert Kleinhenz, deputy chief economist of the California Association of Realtors.

From selling irrigation pumps to tractors, agricultural equipment sales provide jobs to nearly 7,000 Californians, according to a report commissioned by farm-equipment manufacturers…. For California, employment in the wholesale distribution of agricultural machinery and equipment accounted for 0.05 percent of total statewide employment, 0.99 percent of statewide wholesale distribution employment, and 1.94 percent of statewide durable goods wholesale distribution employment, says Global Insight Inc., the firm that compiled the report”. The full report can be found at this link: http://www.centralvalleybusinesstimes.com/links/USAgEquip2007.pdf

No one seems to know for sure, but there is great concern that California might be losing its last aircraft manufacturer. The C-17 is a huge cargo plane designed to transport large equipment, supplies and troops directly to small airfields anywhere in the world. About 5,500 people are directly employed building the C-17 in Boeing’s Long Beach assembly line at an average pay of $65,000 per year, and a roughly equal number are employed by suppliers throughout the area. Because of a lack of orders for new C-17s, Boeing is planning significant work-force reductions starting early next year.

Boeing notified C-17 suppliers Friday that it will stop ordering new parts as it prepares to possibly end production of the plane. The company says it needs more orders to keep the assembly line going but the Defense Department did not request any new C-17s under its proposed fiscal 2008 budget. Boeing has threatened to end production before- possibly as a way to pressure the Military into ordering more planes. Analysts say orders for about 12 planes a year are needed to justify production of the plane.

According to the Long Beach Press Telegram the threat of losing the program is becoming an annual tradition. “We go through these budget machinations every year,” said Mayor Bob Foster. Robert Swayze, economic director for Long Beach said “It would be a real hit to the Long Beach economy and the regional economy”. Others were concerned about losing an entire industry- possibly forever, “This is the last production line where you are assembling an aircraft here,” said Jack Kyser, chief economist of the Los Angeles Economic Development Corp. “There are no more commercial aircraft made here, and this is the last military aircraft. “In terms of a flying machine, this is it. And once it’s gone, it’s gone. You start to lose your skilled workforce, you lose your supplier network.”

“California employers cut payrolls by 4,500 jobs in January, led by declines in the leisure and hospitality industry, the state Employment Development Department reported Friday. The state’s unemployment rate was 4.8 percent, unchanged from December and down from 5.1 percent in January 2006. The number of Californians looking for work in January rose to 877,000 in January from 871,000 in December… The leisure and hospitality industry shed 8,000 jobs in January. Three other sectors posted smaller declines: manufacturing; information; and professional and business services. The job losses were partly offset by gains in the trade, transportation and utilities sector, which added 5,000 jobs.”

“In another indication of trouble in the subprime mortgage market, Countrywide Financial Corp. said Thursday that payments were late on almost 20 percent of the subprime loans the mortgage giant manages for other lenders. The Calabasas-based lender said that delinquencies of 30 days or more on subprimes grew to 19 percent at the end of 2006. Countrywide, the nation’s largest mortgage lender, services more than $1 trillion in loans. A surge in bad mortgages has forced more than 20 lenders to close or seek buyers in the past year, the company said in a filing. “

Excerpted from “Golden State may be blinded by its luster” a disturbing opt-ed piece in the San Francisco Chronicle by Joel Kotkin- an Irvine senior fellow at the New America Foundation:

For much of the past century, California has often seen itself — and been seen by others — as America’s avant-garde state… Recently, Gov. Arnold Schwarzenegger compared California to “the ancient city-states of Rome and Sparta,” praising it as “the harmonious, the prosperous state, the cutting-edge state.” Perhaps it’s time to ditch the celebratory rhetoric and take a closer look at the sober realities. Our magnificent state may still be the home to Silicon Valley, Hollywood, the nation’s largest port complex and the world’s richest agricultural valleys, but by many critical measurements the state is slipping.

The most obvious signs are economic. Although far from moribund, the state may not be as fundamentally strong as its boosters, including the governor, suggest. The state rate of GDP growth over the past decade has been strong, ranking fourth in the nation, but California has been losing ground in the new millennium. In 2004-05, it fell to 17th, behind not only fast-growing Arizona and Nevada but also Oregon, Washington and rival “nation-state” Texas.

Job creation has been even less impressive. In the Bay Area and Los Angeles, it can only be considered mediocre or worse. More disturbing, as California’s population has grown — largely from immigration — per-capita income growth has weakened… Today, California ranks 12th in per-capita income. And it’s losing ground: Between 1999 and 2004, California’s per-capita income growth ranked a miserable 40th among the states. This slow growth reflects a gradually widening chasm between social classes. Although the rest of the country has also experienced this trend, the gap between rich and poor has expanded more rapidly in California than in the rest of the country.

Similarly, the governor’s entertainment industry friends, as well as art and developer elites close to Mayors Antonio Villaraigosa and Gavin Newsom, may feel these are the best of times. But Los Angeles and San Francisco, along with Monterey, now suffer a poverty rate of more than 20 percent, among the highest level in the country.

Parallel to these developments, California is losing its once broad middle class, the traditional source of its political ballast and much of its entrepreneurial genius. Outmigration from the state is growing and, contrary to the notions of some sophisticates, it’s not just the rubes and roughhouses who are leaving. Indeed, an analysis of the most recent migration numbers shows a disturbing trend: an increasing out-migration of educated people from California’s largest metropolitan areas.

Given the shrinking per-capita income advantage for being in California, moving elsewhere increasingly makes sense, particularly for those who do not already own homes and don’t have wealthy parents…

Taken together, these trends suggest that California could be devolving toward an unappealing model of class stratification. As educated white-collar and skilled blue-collar workers leave, businesses in the state will be forced to truncate their operations — perhaps having an elite research lab, design office or marketing arm in California but shunting most midlevel jobs elsewhere.

Remarkably, neither political party seems to have a clue about any of this. David Crane, Schwarzenegger’s economic adviser, seems to think the state can make do by concentrating on the highest value-added work. He seems untroubled that more mundane jobs go elsewhere. That may make sense if you are a venture capitalist, dot-com wiz or movie producer, but it’s not so great if you are an electronics technician, customer support employee or movie grip.

To regain its promise, California needs to stop stroking itself and reverse course. A state that’s great for a relative handful of moguls — no matter how enlightened — and their servants cannot serve as the national model for anything but decadence and decline.

“San Francisco Federal Reserve Bank President Janet Yellen said on Friday she still sees upside risks to inflation but that U.S. interest rates were now ‘well positioned’ to bring inflation down.”

“The consumer price index rose 0.3 percent in January, to about 202, but in the Los Angeles area, the index rose 0.9 percent to more than 212.5, according to figures released Wednesday by the U.S. Bureau of Labor Statistics. While prices are up 2.1 percent from a year ago nationwide, they are up 3 percent on the West Coast. The January figures for the Los Angeles-Riverside-Orange County area were also up 3.2 percent on an annual basis from January 2006.”

“The ongoing housing slump and anticipated labor problems in the entertainment industry cloud Southern California’s economic horizon, according to a forecast to be released today. Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., described the nonprofit business support group’s two-year forecast for the region as “Goldilock-ish” — not too hot and not too cold. Six of the region’s industries, including aerospace, biomedicine and tourism, have good growth prospects, the report says. Economic growth in Southern California will be “slightly slower but still solid” this year, the report said. ‘However, there will still be a drag from the housing market,’ and two of the region’s signature industries, entertainment and international trade, ‘could encounter some rough going,’ Kyser said.”