Thursday, July 23, 2009

The Great California Slump

The term regularly used in describing the current American economy, "The Great Recession," was formalized by Nancy Gibbs of TIME magazine. It's a terrific "euphemism," which means "the substitution of a mild, indirect, or vague expression for one thought to be offensive, harsh, or blunt." It has the feel of thinking that pervades the Wall Street of the American Baby Boomers and Gen X'ers.1

When I wrote in May that California's Great Recession likely will begin "in earnest" in July 2009, I hadn't really thought about a proper name for it. But as I thought about what would best describe what's begun here, the best term I could find is "slump," the first definition of which is "to drop or fall heavily; collapse."

The Great California Slump has an appropriate sound. According to the chart available from the U. S. Department of Labor, California lost 483,367 jobs or 2.87% of its jobs in the first six months of 2009, which is an annualized rate of job loss of 5.7%. Though according to economists, the U..S. as a whole was in a recession at the end of 2007, California lost "only" 294,185 jobs or 1.71% of its jobs in all of 2008. So while it may have been experiencing some impact of The Great Recession, The Great California Slump began in January 2009 and continues.2

Presently the Legislature's staff labors to assemble and the members ponder the 31 bills needed to adopt a $10±-billion-out-of-balance "balanced budget" (some of the bills are posted here for downloading and the Floor Report of the 2009-10 State Budget was made available late tonight).

While they were doing that, The Los Angeles Times and the Associated Press are reporting that this morning a Japanese news agency learned that Toyota has decided to liquidate its interest in the Fremont, California manufacturing plant that it jointly operated with General Motors. The plant had employed about 4,600 workers making Toyota Corollas and Tacomas and Pontiac Vibes. Last month when it was learned that GM would be leaving its interest in the plant with Motors Liquidation Co., the East Bay Economic Development Alliance said its closure could impact 30,000 jobs indirectly related to the factory.

Assuming Toyota asks Motors Liquidation Co. to sell the plant, the jobs directly and indirectly lost would appear in the job loss statistics in the second half of this year and perhaps the first half of next year.

Few of the 7,000 new layoffs announced in May and last week by the Governor, and now incorporated the State budget proposal, won't occur before September 15 and definitely won't appear in the job loss statistics until the last quarter of this year as the state's layoff procedure takes 120 days from when a worker is notified of a possible layoff. (Some positions may register earlier as jobs lost as a few hundred of these employees have transferred to other departments and some jobs were vacant when the announcement was made.)

Most of the layoffs of school employees necessitated by this round of state budget cuts, teachers and other staff, will show up in the jobs lost statistics over the next four months. The local government jobs lost did begin this spring, but more will also be seen in the next four months.

It appears that with the two state university systems, at least 300,000 state employees are going to continue to take three unpaid furlough days a month for the foreseeable future. While the loss of 15% of gross pay hurts the employees and their families, it also means that $1.5 billion will not be put into the state's economy through spending and taxes. In terms of the impact on the private sector, it is comparable to laying off another 45,000 state employees as this is money that won't be spent on clothing or iPhones. As each "furlough friday" goes by, some $4,000,000 is not spent by furloughed state employees. Without this money, the retail sector will lay off additional employees whose job loss will be reflected in the statistics in future months.

Exactly how the State government itself has calculated that over the next 12 months this won't result in major sales and income tax revenue reductions well beyond the May estimates is a puzzle in itself. But when it does, there will be more gnashing of teeth in the halls of the State Capitol. Although....

Break out the fireworks! Tomorrow California may become ever more like a nation on its own. One of the bills to implement the budget "allows" or "requires", depending on your point of view, the State Compensation Insurance Fund and the State Lottery to "invest in" state debt, much like the federal government first borrows from its own Social Security fund. One has to wonder if next year CalPERS and CalSTRS will be required to "invest in" or "bail out" the State government.

The Great California Slump indeed will be "slumping" in earnest for a number of months to come.

1That several recessions, most recently in 1989-91 and 1999-2001, were termed by some as "The Great Recession" is more indicative of a total unawareness of what it takes for an economic slump to become "great," than of what is going on. What's going on now viewed with any sense of history is a "depression" preceded by a "panic."
2A "slump" in economics is considered "any mild recession" so it seems reasonable to couple the term with "Great" to indicate that it is a significant, major slump.

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