California Slowdown a Bad Sign Indeed

Monday, Dec. 31, 2007 9:51 a.m. EST

California, if it were an independent nation, would be the eighth-largest economy in the world. It represents nearly 12 percent of the total U.S. economy.
And, it is slowing down.

In the next fiscal year, the state faces a $14 billion budget shortfall -- roughly the GDP of the country of Jordan. Polls show voters expecting higher taxes and cutbacks in services in the next 12 months.

The housing market problems in California are well known. In an especially troubling sign, a group known for cheery forecasts -- the state's realtors -- is suddenly pessimistic about the coming year.

"A real recovery in the housing market is probably at least a year off," said Robert Kleinhenz, deputy chief economist for the California Association of Realtors.
The knock-on effects are unmistakeable: The state Department of Finance reports that through November, year-to-date tax revenues were more than $665 million below expectations.

Personal income, corporate income and sales taxes are all below year ago levels, indicating that the slowdown, although mild, is broad-based.

Meanwhile, California's unemployment rate held steady at 5.6 percent in November, almost a full percentage above the national rate of 4.6 percent.

Although steady, a deeper look into the jobs report suggests the economy is in face slowing.

The number of unemployed grew by 16,000 in the most recent data, and by more than 186,000 over the past twelve months. The Employment Development Department said employers added just 900 jobs in November, a sign that the weak housing market is still taking its toll.

The construction industry shed almost 40,000 jobs over the past twelve months. Financial services jobs declined by 18,000. These numbers mirror the national trends.

"We have a slowing economy; it's attributable mostly to housing," said Stephen Levy of the Center for Continuing Study of the California Economy. "I didn't expect the jobs stuff to disappear this quickly."

Economists are fond of saying that if the U.S. sneezes, the rest of the world catches the flu. The same might also be said about California in relation to the rest of the country.

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