ECONOMY WATCH : . . . While Battered California Looks for Signs of Upturn
In realtors’ offices across California, a new phenomenon has been visible in recent weeks--customers. At least a few home builders have reported a rise in their long-depressed business. And amid all the mixed economic signals of recent days, there even have been hints of an upswing in retail sales.
Is the California economy, bruised and battered from an unusually severe downturn, creeping back to its feet?
“It’s probably too early to say that a recovery has begun in California,” maintains Lynn Reaser, an economist at First Interstate Bank in Los Angeles. “But by the spring, we’ll see some better (economic) performance of the state.”
In just the past few weeks, both the U.S. economy and its California counterpart have sent a few preliminary signals of stirring. Nationally, retail sales rose 0.6% in January, reflecting a broad-based increase in consumer purchasing and following a revised 0.1% increase in December. Auto makers have reported sales increases nationally, and a January survey of 1,000 manufacturers by Dun & Bradstreet detected optimism that an upturn was emerging.
In California, the upbeat signals are anecdotal and tentative--but a departure from months of bad news. In January, single-family home sales rose in California for the third straight month, even as they declined nationally. It has been two years since home sales rose in California while falling in the country overall.
Other upbeat signs: Realtors in Sacramento reported a 59% jump in deals started to purchase homes in January over a year ago; in Silicon Valley, the increase was 35%; in the San Fernando Valley, 25%, and elsewhere in Los Angeles, 17%.
To those eager for encouragement, such reports seem long overdue: “Definitely, in housing we’re seeing a clear recovery--thank God,” says Chuck Lamb, president of the California Assn. of Realtors in Los Angeles.
Yet the case that a sustained recovery is beginning has not been fully made, most maintain, in light of lackluster evidence about job creation, construction and other important parts of the economy. Analysts--mindful that the Golden State has suffered its worst non-seismic wallop in many years--are forecasting only a gradual upturn that will trail the U.S. pace in the coming months.
Even the January jump in home-buying, for example, compares to an extraordinarily depressed period last year that included the Persian Gulf War.
The cautious mood of forecasters, shaped by a persistent litany of aerospace cutbacks, woes in commercial real estate and worries about the business climate, represents a striking change from just a few years ago, when some asserted that California could ride out a national downturn. Analysts generally expect economic growth to pick up a bit later this year, aided by certain enduring strengths of the state, such as its diverse industrial base, growing population, skilled work force and role in growing trans-Pacific trade.
The long-awaited upturn will come more slowly, however, and possibly be weaker than the expansion of the U.S. economy, which may be under way already.
Some also question whether the housing market activity is misleading. Recent rises in mortgage rates may have prompted some home buyers to jump forward, because attractively priced loans were starting to creep back up in cost.
“You hate to throw ice water on it, but the question is: Was the increase in home sales prompted by the dip--then rise--in mortgage rates?” asks Ted Gibson, principal economist with the California State Department of Finance.
Economists view the construction of new homes, which has been taking place at extraordinarily low levels, to be a more influential economic barometer than sales of existing homes. Far more than sales of older homes, new construction creates work for a variety of building trades and spurs many purchases--curtains, carpets and furniture.
It isn’t clear, however, whether home construction in California is awakening from its somnolent levels of the past year.
“Spotty information suggests that the numbers should be up for January,” says Ben Bartolotto, research director for the Construction Industry Research Board in Burbank. “Some of the numbers look better than they have been--but it’s not uniform.”
While Golden State boosters have long described California’s economy as one of the world’s largest in its own right, the state’s fortunes are inevitably linked to the ups and downs of the broader U.S. economy.
Both the nation’s economy and its California counterpart--albeit less dramatically--exhibited some pickup last spring, after almost a year of recession. Later in 1991, however, the fledgling recovery seemed to stall, sparking fears that a new downhill slide into recession was imminent, both for California and the nation.
The organic bond is illustrated by interest rate policies engineered by the Federal Reserve Board. In the wake of lower interest rates last year, many California homeowners have refinanced their mortgages to trim their monthly bills. Indeed, such refinancing soared 51% in the last three months of 1991 over the previous three months, according to Dataquick Information Systems of La Jolla.
In January alone, 64,221 such refinancings were recorded, an all-time high (the year-ago figure was less than half, at 26,694).
Just how all these California consumers handle their monthly windfalls will make a dramatic difference to the economy. It would get a helpful boost if they use the extra cash to increase purchases of big-ticket items; by contrast, decisions to save the money or to pay off loans would provide no short-term kick, even though they may be helpful for the long run.
For now, it remains uncertain what the trend will be: “You have a lot of people out there who are going to be saving $200 to $300 a month,” points out Brian Cromwell, an economist with the Federal Reserve in San Francisco.
Another question for California forecasters is the trend in job creation, following what now looks like an astounding 5% loss of 660,000 jobs since the recession began--the worst plunge since the Great Depression--according to an analysis by the California State Department of Finance.
The latest evidence is ambiguous. In January, the state lost more than 200,000 jobs--which may sound dire, but in fact is less than the usual post-Christmas decline. On a seasonally adjusted basis, however--which economists usually consider more meaningful--the decline shows up as a gain of 41,100 jobs, the first such gain in five months.
