Gloomy Employment Picture For California

UCLA's Anderson School of Business produced a grim forecast today for California's job market. It sees unemployment above 10% statewide until 2012. Given California's importance in the U.S. economy, even Americans residing outside the state should find this news troubling. Unfortunately, UCLA's economists could be right.

Here's some detail, via Reuters:

The forecasting unit said the jobless rate of the most populous U.S. state, which would be the world's eighth-largest economy were it a nation, will reach a high of 12.7 percent this quarter and average 11.7 percent this year.

Nearly all of the state's major industries, led by construction and manufacturing, will have slashed jobs this year and most will cut deeper into payrolls next year while California's labor force grows.

That points to the state's unemployment rate averaging 12.0 percent next year and remaining in double-digits even after growth resumes in the following year, the report said.

This might sound pessimistic, but it's also reasonable. Most economists agree that high unemployment will plague the U.S. for quite some time. The Federal Reserve has that view. Some economists think that a new, higher natural level could be forming in the U.S. Others believe that full employment won't return until the latter part of the next decade. So the idea that California's unemployment rate will remain elevated for a sustained period of time reinforces the consensus.

As of October, unemployment in California was up to 12.5%, significantly higher than the national average of 10.2% for the month. If California had a naturally high unemployment rate of, say, 8%, an elevated rate might not seem like that big of a deal. But that's not the case. For almost all of 2006, its unemployment rate was below 5%.

Here's a graph demonstrating just how severely the state's unemployment picture has changed, according to the Bureau of Labor Statistics:

cali unemployment 2009.gif

California has a robust and diverse economy. But it was also a housing bubble capital. Californians not only lost a great deal of money on their homes when the bubble burst, but the failure of mortgage companies also affected the state. A large portion of the mortgage industry made Southern California its home. Some of those companies, including Countrywide, Ameriquest and New Century no longer exist. Of course, construction also took a major hit.

Technology likely serves as California's highest hope for jobs recovering sooner than UCLA's report forecasts. If it can manage to become a center for green energy innovation and endeavors that could also help it recover more quickly. But, for other industries, as long as so many consumers remain unemployed, spending will be dampened, making it harder for many companies to grow.