Unemployment Friday: CA down to 11.9%, but other states dropping faster

In today's report, some people are trying to make something positive of dropping below the 12% unemployment threshold to 11.9%.  They shouldn't get too excited.

What would be exciting is if we were seeing the kind of declines seen in places like Michigan and Nevada.  Unemployment used to be higher in Michigan than in California, but it is down to 10.2% there from a peak in the 14s, and Nevada is down to 12.5%, dropping 0.7% in a single month and it also peaked in the 14s.  If these trends continue, Nevada may drop below California and leave California with the highest unemployment rate in the U.S.  And then we will see a new wave of stories on California's downfall.

However, unemployment rate movement is being driven more by labor force changes than employment growth.  Michigan and the auto industry is rebounding, but it's labor force is also shrinking, down 6% over 4 years.  So, it is recovering a little better than California, but not as much as the unemployment rate would lead you to believe.

And Nevada.  The labor force there has declined by 4% over the past year, and that is what has driven the unemployment rate from 14.9% to 12.5% in a year, although tourism and the casino's are slowly picking up, employment is still down.

So when California's unemployment rate becomes tops in the nation later this year, it is an indicator that our economy stinks and recovery is lackluster.  But it also means that people aren't giving up on California's job market (whether by moving or leaving the workforce) at the same pace as Nevada or Michigan.

Within California, some of the big inland areas like Sacramento and Riverside are showing large labor force declines too, but only about half that seen in Nevada.  This month's job report mostly reflects the same patterns.  Silicon Valley, Disneyland and Hollywood are recovering.  The housing market continues to keep inland areas down; although there continues to be signs in the Valley of solid growth in agriculture, transportation/logistics, and food manufacturing; just not enough to overcome the housing and local government crash.

Squatter's Rent/Stimulus

A J.P. Morgan Chase analyst estimates that the value of "squatter's rent" will total $50 billion in the U.S.  That's a significant sum, about 0.4% of total U.S. personal income.  (Note: Squatters rent refers to the value of free "rent" enjoyed by those living in homes in foreclosure or seriously delinquent on a mortgage.)

Last spring, I made a similar estimate for San Joaquin County although I called it "squatter stimulus."  At that time, I estimated the squatter stimulus was equal to roughly 3% of the County's personal income, based on the 20% of serious delinquency rate on San Joaquin County mortgages at the time, and the estimated rental value of a typical house in the foreclosure process. 

In a bit of good news, the serious delinquency rate in San Joaquin County has declined to 15% according to the lastest data I saw.  This suggests that the total of households leaving delinquency due to a completed foreclosure, short sale, or mortgage modification is greater than new delinquencies.  Before getting too excited about the decline in delinquencies, it is important to realize that a typical historic delinquency rates on mortgages is about 2% (and a lot more of these delinquent mortgages were successfully resolved without foreclosure since a lot of these owners had equity in the homes creating a strong incentive to sell or get current).  So we are likely past the peak, but there is still a long, long way to go.

Declining delinquencies also reduce the amount of squatter stimulus in the County, and I suspect it is now about 2% of personal income.  Obviously, squatter stimulus is not a sustainable or desirable basis for consumer spending, but it is a factor to note when considering how local consumer spending will evolve in the recovery.

From the San Francisco Chronicle on squatter's rent:

"Squatter's rent," or the increase to income from withheld mortgage payments, will be an estimated $50 billion this year, according to Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The extra cash could represent a boost to spending that's equal to about half the estimated savings generated by cuts to payroll withholding in December's bipartisan tax plan.

"We've had a lot of government transfers to the household sector; this is a transfer from the business sector to households," Feroli said. "It's a shock absorber that has helped the consumer ride out the storm."

Delta Tourism article in Sac Bee

Overall, this is a good article and I generally agree with the main points in the article in the report.  Public access to the water in the Delta could/should be greatly improved, and there is a lot of growth potential for recreation in the Delta.

But there is an incorrect number in the article that could be misintepreted.  The Sac Bee article states.

Mandated by 2009 water reform legislation, the report says visitor spending in the Delta generates $784 million annually and supports 15,000 jobs. There is potential for much more if only there were more trails, campsites and waterfront access.

Here is what the report actually says.

Economic Activity in the Delta. The purchase of equipment and supplies for day outings helps support local economies.

Visitor spending in the Delta and Suisun Marsh counties’ recreation, art, and entertainment sectors is about $784 million annually, generating almost $388.7 million in earnings and supporting over 15,000 jobs.

Did you notice the subtle difference?   It's easy to see how this was misinterpreted by the reporter.  I think it would be by most people.

I have no idea why this number is even in the State Parks report.  The numbers are correct, but have little to do with the Delta.  It is the total of arts, entertainment, and recreation in the 5 counties that include the Delta.  I checked the numbers, and about 20% of the total is the Sacramento Kings NBA team.  The arena in Natomas may be in a flood zone, but it isn't in the Delta.  The next biggest things are 6 Flags amusement park in Vallejo, and scores of golf courses, fitness clubs, bowling centers, and arts related organizations.  Marinas are the biggest Delta-related piece of this and employ about 300 people in the 5 counties, mostly in the Delta. 

The impact of tourism and recreation in the Delta is a very hard thing to measure, and it will be important to get the number right for some of the current and upcoming policy discussions surrounding the Delta.  I am part of a group that is developing a more reliable estimate, and will share that once we have it.  A very rough ballpark would be $250 to $500 million, and the largest and fastest growing component of that spending is gasoline. 

Even defining Delta tourism and recreation is tougher than you might think.  "Sesame Street Live: Elmo's Healthy Heroes" is coming to the Stockton Arena this month and is in the legal Delta.  Would you count it?

Scranton, PA is America's Least Miserable City

Given all the local commotion about the Forbes miserable city list, I assigned a student intern to compile the data Forbes used and reverse engineer the list. Recall that Stockton topped the list that is reviled in the Valley with and Modesto, Sacramento and Merced also rating in the top 5 of Forbes misery.

Forbes didn't publish the full ratings or data, just the cities at the top of the misery chart.  We wanted to see the other end of the list, the least miserable places.  Our intern, Jesse Neumann, was successful in replicating 8 of the 10 indicators - we couldn't figure out how they measured losing sports teams and political corruption - but we were still able to match the ranking very well.  We found the full ranking to be entertaining and insightful, and my friend in university PR thought it was interesting enough to put together a news release (see below). 

Click through the link at the bottom if you want to see the full rankings in Jesse's report and see where your hometown ranks.  (Note to Sacramentans:  Sacramento actually fared a little better, down to 8th most miserable in our version, primarily because we didn't have the sports indicator so the Kings steady losing wasn't dragging you down.)

America’s Least Miserable Cities: Scranton, Pennsylvania is America’s least miserable city according to a replication of the Forbes magazine misery index (May 5, 2011) -

Earlier this year, Stockton was named the most miserable city in the United States by Forbes Magazine and was followed closely behind by Sacramento and Modesto. But what is the least miserable city in the United States according to Forbes?

Well, it's Scranton, Pa., according to a replication of the Forbes magazine miserable cities rating done by the University of the Pacific's Business Forecasting Center.

Forbes has rated Stockton, California America's most miserable city 2 of the past 3 years, but did not publish the full rankings of metropolitan statistical areas (MSAs). For the 100 largest MSAs in the U.S., the Business Forecasting Center compiled the data for 8 of the 10 indicators used by Forbes, and was able to closely match the published Forbes misery rankings.

"We were interested in what cities were on the other end of the list," said Jeff Michael, director of the Business Forecasting Center (BFC).

"I'm graduating soon, and I wanted to know where I should go to escape my misery," added BFC student researcher Jesse Neumann.

Scranton, the setting of the hit television series "The Office," was a surprise to the BFC researchers. Scranton stood out in the misery rankings for having the smallest decrease in home values, and exceptionally low foreclosure rates. "With home prices in Scranton so low for so long, who needs a mortgage?" Michael said.

Despite being the most and least miserable cities, the BFC researchers observed that Scranton and Stockton had some things in common. Both metro areas began the decade with nearly identical populations. The 2000 Census recorded the Scranton MSA population at 560,625 and the Stockton MSA at 563,598. Over the next ten years, Scranton added 3,006 people, a 0.5% growth rate. In contrast, Stockton grew by 121,708 people, a 21.6% rate.

"It seems that people are attracted to misery as Forbes defines it," Neumann observed.

After working with the data, it became apparent to the researchers that Forbes was missing a few obvious indicators. "Surprisingly, the Forbes ranking did not use a single indicator of income or wealth, or any measure of people moving out of the area," Michael said.

As an experiment, the researchers replaced four of the most problematic Forbes indicators. Specifically, they removed: 1) political corruption, 2) sports team records, 3) sales tax rate, and 4) 3-year change in home values. They replaced these indicators with 1) net domestic migration, 2) median household income, 3) property taxes, 4) housing affordability index. "Sales taxes are often used by cities to shift the misery of taxes on visitors, whereas the misery of property taxes falls entirely on residents," Michael said. The unemployment rate, foreclosure rate, crime rate, average commute time, weather, and income taxes were kept in the revised index.

In the experimental misery index, Miami was most miserable, followed by Detroit. Stockton was third, followed by Chicago, Los Angeles, and Memphis. Three of the four least miserable cities in the experimental index were in Utah.

According to the Business Forecasting Center researchers, the exercise confirmed the arbitrary and meaningless nature of these types of magazine rankings.

"Unfortunately, the Forbes ranking is causing real harm to these so-called miserable cities," Michael said. "They should publish the full ranking and data so people can better make their own judgment about the reliability of the misery rating. Until that happens, we will continue to replicate their full rankings as closely as possible."

Forbes ranked the 200 largest MSAs, whereas the BFC only compiled data for the 100 largest MSAs. Thus, smaller areas on the Forbes list such as Merced, Calif., do not appear in the replicated rankings. In addition, the BFC team was unable to replicate two indicators in the original Forbes ranking due to missing data or an unclear methodology: political corruption and winning sports teams.

The full report is available at: http://forecast.pacific.edu/articles/BFCForbesRevisit.pdf

Water Won't Wash Away Valley's Recession: Two Years Later

Two years ago, on May 1, 2009, the Sacramento Bee published an op-ed I wrote titled "Water Won't Wash Away Valley's Recession."  The Fresno Bee reprinted it a few days later.  Today, water supplies are very high and unemployment rates throughout the Valley are higher than they were in 2009, suggesting that the title of the piece was correct.

I have never received such a strong reaction to something I have written.  The reaction (mostly positive but occasionaly ugly) changed the economics of water issues from being what I considered a hobby to an ever growing part of my real job.

The article was my response to the Latino Water Coaliton march of April 2009, and the scores of articles in the media at that time which were misrepresenting the facts and distracting our leaders from a much larger economic crisis.  [On a non-water note.  Wouldn't it have been nice if Valley Congressional leaders banded together to demand stronger foreclosure prevention programs from the Obama administration back in Jan-Apr 2009 when they finalized their economic recovery plan.  Foreclosures were supposed to be the third "prong" of their recovery program, and we got relatvely strong programs to support the other two areas, 1) banks, and 2) stimulus; and weak, underfunded, ineffective foreclosure prevention programs.  Too bad the foreclosure prevention component didn't have stronger advocates back then.]

I have reposted the original op-ed below.  I think it is interesting to read again after everything that has happened over the past 2 years, and the points are still relevant.  It is the first part that received most of the attention, but I have always been equally if not more concerned about the last part. 

Water Won't Wash Away Valley Recession 

(originally pubished, May 1, 2009 in Sacramento Bee)

What is causing unemployment in the San Joaquin Valley? According to water contractors and their political supporters, a "regulatory drought" has eliminated water-dependent farm jobs, and they point to high unemployment rates in farming communities as proof. Their solution is to suspend the Endangered Species Act and build a multibillion-dollar peripheral canal around the Delta.

However, the facts don't support the water contractors' view. The latest payroll data through March finds that farm jobs have grown faster than any other sector of the economy in the past 12 months, even outpacing health care. In fact, farm jobs have been growing throughout the three-year drought. Compared with 2006, farm jobs have increased 5 percent in California, while private nonfarm jobs have decreased 5 percent.

The same is true in Fresno County, home to communities such as Mendota that have been the focus of water exporters' news releases.

In Fresno County, farm payrolls increased 3.2 percent in the past 12 months, compared with a 3.4 percent decrease in private, nonfarm payrolls.

Since the drought began three years ago, Fresno County farm payrolls have increased by 12 percent, while nonfarm employment has crashed, led by a loss of more than 7,000 construction jobs.

In light of these statistics, how can water exporters, politicians and others claim that rising unemployment in the Valley is a result of water shortages for farms rather than the broader recession? The foreclosure crisis is at the heart of the recession, and the Central Valley has the highest foreclosure rates in the United States. Homebuilding has shut down, and service sectors have cratered, costing many former farmworkers their higher paying, nonseasonal jobs.

Water contractors point to 40 percent unemployment in Mendota as evidence of the water crisis. These unemployment estimates for towns aren't a current survey, but are crude extrapolations from the 2000 Census, the last time any real data were compiled for these areas.

The 2000 census gives a good picture of the prosperity that increased water pumping would bring to Mendota's hard-working residents. Delta water exports were above average in 2000, and local farm employment was at a nine-year peak. Despite this, the 2000 census found unemployment in Mendota exceeded 32 percent, highest of the state's 494 towns.

Per-capita income was below $8,000, the lowest level in the state, nearly 20 percent lower than Mexico and many developing nations in Africa, Eastern Europe and South America. Not surprisingly, water contractors don't issue news releases about unemployment when they have water.

In fact, growers have been complaining about shortages in recent years, even as Mendota's unemployment estimate was 25 to 30 percent.

There will be substantially fewer seasonal farm jobs this year as thousands of acres are idled, and this will further increase the pain of the recession in farming areas south of the Delta water pumps. As these impacts appear, it is important to consider them over the entire three-year span of the drought, rather than treat agriculture's recent unsustainable peak as normal.

In the early years of the drought, agriculture expanded in response to a commodity bubble that more than doubled crop prices, farm profits, and farmland values in a span of a few years. Much of the increase is attributed to permanent crops in desert regions with interruptible junior water rights. Between 2006 and 2008, more than 50,000 acres of new almond orchards were planted, mostly south of the Delta pumps, while a nut glut led to a price collapse for all growers. Similarly, California's enormous dairy industry expanded rapidly, and now taxpayers are spending millions to buy surplus milk and prop up prices in an oversupplied market.

Taxpayers are the forgotten stakeholders in the various Delta planning processes. With no one protecting taxpayer interests, it's no surprise that Delta Vision recommended the most costly options to the governor. The Bay Delta Conservation Plan does not plan to make a cost estimate of their plan until after it is complete.

Recent state tax increases are hurting families, businesses and private sector job creation, while California has the lowest bond rating of any state. Water contractors think the state should borrow billions for their cause, crowding out investments in education, energy, transportation and other critical areas that will support the high-paying jobs of the future.

Their plan would also have adverse impacts on Delta agriculture, recreation and tourism, commercial fishing and the jobs supported by these industries.

Delta Vision, water contractors and now the Bay Delta Conservation Plan are primarily making economic arguments for their plans. While spending millions on engineering studies and public relations, the state is not sponsoring any serious research to comprehensively evaluate economic effects of the water plan.

California's overburdened taxpayers deserve better.