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Wading Through Mixed Messages on Economy


The local unemployment rate increased to 10.3 percent in July, but San Diego housing prices have been increasing over the last couple months. President Obama announced the country faces a $9 trillion deficit for the next decade, yet consumer confidence is on the rise.

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Above: The editors discuss the conflicting economic picture.

The local unemployment rate increased to 10.3 percent in July, but San Diego housing prices have been increasing over the last couple months. President Obama announced the country faces a $9 trillion deficit for the next decade, yet consumer confidence is on the rise. What are some of the indicators that the local and national economies are turning around? And, what are some of the major economic problems that still need to be fixed?


Tom York, editor of the San Diego Business Journal.

Tony Perry, San Diego bureau chief for the Los Angeles Times.

Andrew Donohue, editor of

GLORIA PENNER (Host): I'm Gloria Penner. I'm joined by the editors at the roundtable These Days in San Diego. Today we'll talk about what the economic signals are telling us, both nationally and locally, what school superintendent Terry Grier's expected departure tells us about him, the school system and the school board, and how scared and prepared are we getting about the swine flu? The editors with us today are Tom York. He's editor of the San Diego Business Journal. Glad you could be back with us, Tom.

TOM YORK (Editor, San Diego Business Journal): Glad to be back – or, glad to be back here.

PENNER: Well, good.

YORK: Yeah.

PENNER: Tony Perry, San Diego Bureau Chief for the Los Angeles Times. And welcome back to you, Tony.

TONY PERRY (San Diego Bureau Chief, Los Angeles Times): Thank you.

PENNER: And Andrew Donohue, editor of Say something inventive, Andrew.

ANDREW DONOHUE (Editor, Voice of San Diego): Always good to see you, Gloria.

PENNER: That's terrific. Our number is 1-888-895-5727, 895-KPBS. Well, housing prices edge up in San Diego, so does unemployment and jobless claims. Is the economy turning around or is it at a standstill? Well, this week there was some confusing reports on the economy, at least for the casual observer. Thursday's report was a better than expected shrinkage of the economy, signaling that the recession is ending. But just a day or two before, we heard sobering news from Washington that the economy would contract more than expected, that the deficit would be more than expected, and that unemployment would be higher than expected. Consumer confidence rose as did home prices. Tom, I'm confused. Are these mixed signals? Explain to me, please.

YORK: Well, they are mixed signals and I think what we're seeing here is that the economy is still trying to settle into a pattern that will emerge probably going into the fall and into the new year. My reading of the economy is, is it's almost like a motorist approaching a very busy intersection. The signal – the traffic signal is flashing yellow, which means you can proceed but you have to do it very cautiously because there might be some semi-trucks coming down the other side. So I – You know, I think the fact that housing prices are up indicates that the housing market has reset and that housing prices have reached a point where buyers are willing to jump in and start buying again. But, you know, there are other issues with the economy, there's more complicated issues with, you know, with business still downsizing to a degree and I think that, you know, there's just a lot of fog out there, and we're just trying to see where the landmarks are.

PENNER: Okay, so I want to stick, first of all, with the national scene for a little bit before we turn specifically to San Diego. I'm going to stay with you on this, Tom.

YORK: Umm-hmm.

PENNER: What does it mean when there's a prediction that the economy will contract 2.8% more than previously estimated? I mean, is this a bad thing?

YORK: Well, it's not a good thing. It's deflation. It's basically what many of the top economists fear. When the economy is deflating that means there's not as much economic activity. That means there's less business activity, fewer people employed, less spending in the economy. Everybody hurts when there's deflation. It's just not a good thing.

PENNER: But then how does the prediction from many analysts that the economy is growing in the current quarter fit in with that prediction that we're going to have a contracting economy? I mean, is it growing or is it contracting?

YORK: Well, the newspaper report, the national newspaper report that I saw said that the economy contracted 1%, which was a little bit less than the 1.5% that the Obama administration said the economy would contract. We've just gone through a very tumultuous period and so it would make sense that there would still be some contraction going on in the economy. You know, employers are still throwing off tens of thousands of jobs but that rate of job loss is slowing so that's where the optimism comes. Well, people are saying, well, if it's slowing then it's got to be getting better.

PENNER: Well, let me see how our listeners feel about this. Are you optimistic that perhaps we've turned the corner? That the recession is, if not growing it's at a standstill? I'd like to hear your opinion on this as to whether you feel good about what's happening or you're still really, really worried. Our number is 1-888-895-5727, 895-KPBS. Well, you're out there in the real world, Andrew Donohue.

DONOHUE: Sometimes.

PENNER: Well, maybe not today because you're here but most of the time. Do you think that we are still seeing that joblessness is a huge problem not only nationally but here in San Diego?

DONOHUE: Yeah, it is. I think there's sort of two grains of salt that the – that you need to take with the recent increase in the housing prices, and one is just what you said, unemployment. The second one is foreclosure. You know, we all have become quite familiar with the subprime meltdown but there's sort of a second level of new subprime, if you will, that's lurking there, and that's Alt-A loans. These are risky loans that were taken out by people with good credit, and so these were the people that were buying maybe a million dollar home when their credit should've only been able to buy a $600,000 or $700,000 home. And the amount of foreclosures and defaults in that area is getting stronger and stronger and that's what you're kind of seeing right now in a fragmented housing market. The lower end seems to be stabilizing. There's a lot of activity on the – on sort of the lower ends of the market but those higher ends and the middle, the high end, still is showing a lot of problems.

PENNER: Well, you know, Tony Perry, I'm reading this morning's business section from the San Diego Union-Tribune. We don't have anybody from the U-T here. And the headline says 'county's economy continues to improve.' And it cites rebounding stock prices, a more positive outlook, cautious optimism. I mean, that sounds really, really positive, and yet I'm hearing all of these other things, that foreclosures may increase. Yes, housing prices are up but maybe that's because the inventory is down. I'd like to know where you stand on this and, of course, I'd like to know where our listeners stand, too. Let me give our number first before you give me your answer, Tony. 1-888-895-5727. Are you positive about the economy or are you still worried?

PERRY: I'm a cautious bear. I'm not – I haven't become a bull yet but I'm becoming cautiously optimistic. I recently had the delight of driving from San Diego all the way to the Oregon border and viewing subdivision after subdivision after subdivision, the Central Valley, northern California, the San Diego suburbs, to a lesser extent, certainly the San Francisco suburbs that look like ghost towns that were built at the high end of the market and either no one is living there or there's just a forest of for sale signs, so I think we're still in a real fix and I think, as Andrew suggested, we're going to get another bump on the foreclosures and that will lead to less optimistic headlines. The U-T headline, would that the county had a separate economy from the rest of the world. It's another example of that San Diego is not just the center of the world but the whole world view that we get. Well, we're not, and we're connected to the out-of-town economy, unfortunately. And all sorts of things, foreign events, weather, you name it, could have an impact on all of this.

DONOHUE: Let's not forget, too, that a lot of this activity is being created by the government printing money so eventually you're going to have to throw the brakes on that, otherwise we're going to have problems with inflation as well.

PENNER: And we are getting some mixed messages on the San Diego housing market. We heard that. A moratorium on the foreclosure process is holding down foreclosures temporarily and that does lower inventories and—temporarily anyway—and increases prices. So what's your take. Do you think, Tom York, that when that moratorium is over that we're going to see the foreclosures increase substantially and that once again we'll have a larger inventory and house prices might come down again?

YORK: I don't think so. The people who are buying – a lot of people who are buying these foreclosed properties are investors and one of the interesting things that's always piqued my interest is that all during this meltdown, all during this period of economic turmoil, the investors have been out there snapping up these properties like crazy because the prices have reset to the point where an investor can buy a house, put it on the market and make money. So every time a foreclosed – most of the time that a foreclosed home comes up for sale, especially at the lower end of the market, investors are beating each other over the head to basically get the property. So there's – I think that's what we're seeing in the housing market although I think regular buyers are starting to show up in there, too, and they're having to compete with investors. But whether or not there's a flood of these coming on the market, I don’t know, but I think we're still – have some way to work our way through and I think the price – the houses at the higher prices, they're going to be next. We have to see what's going to happen with them.


PERRY: And so much of this is psychological, too, this – this metric called consumer confidence. I'm not sure how one measures that accurately. But a lot of it, seems to me, is related to what messages we're getting out of Washington and it seems to me the Obama administration can't decide whether to be optimistic, cautiously optimistic, cautiously pessimistic, or doom and gloom that that's a better political position. And given that, no wonder there are bucks and jumps…

YORK: Right.

PERRY: …of consumer confidence here on Main Street.

PENNER: Well, I think people certainly do react to the messages they get not only from the administration but also from the media. And speaking of the media, that's us, so let's hear from our listeners. Jim is with us. Jim is on Interstate 8. Hi, Jim, you're on with the editors.

JIM (Caller, I-8): Yes, good morning.


JIM: I'll quickly say hi to Tony. I bump into him in our building occasionally. You're talking indicators, one of the things that I'm sure the panel understands but probably could mention briefly is we have lagging indicators, we have leading indicators, we have what we call coincidental indicators. And unemployment is a lagging indicator, so even – you know, even though the economy might look as though it's got signs to pick up the next two, three months, unemployment's still going to be in a bad state through the next one, two, maybe three more quarters. So it always lags what's gone on in history. Businesses will continue to reduce their number of employees until they're far more confident about the future so you'll see the lagging indicators being pessimistic at the same time, you know, Professor Gin has indicated leading indicators are positive for San Diego but they're really not going to kick in for another six to eight months. So when you talk about indicators, it could get confusing but, as I say, some are lagging, some are leading.

PENNER: Okay, well, I understand what you're saying, Jim, and, certainly, I've heard from one owner of a large temporary agency. I asked him, you know, how things were looking in the temp world because usually the temp world is the first to signal whether we're going to see more joblessness or less, and he said we're bumping along the bottom. And that's an interesting picture to – you know, you see that sort of hitting the bottom then bumping up a little bit and then hitting the bottom again. So do you see that as sort of the canary in the coal mine, Tom York? The temp industry?

YORK: I do, and I think that, you know, if you look at what temp agencies are doing, if they're placing more people then we can perhaps say that things are starting to improve. I think business right now in general is holding back. I think they had the capability of hiring more people but I think they've gone through basically the little house of horrors here over the last year and they're scared. They're scared. Business people are afraid to make the commitments to move forward.

PENNER: Rick in Mission Valley is with us now, and thanks, Jim, for your call. Rick, you're on with the Editors Roundtable. What would you like to say to the editors?

RICK (Caller, Mission Valley): I'd like to say that I – you know, I'm very bullish and optimistic and, you know, I've invested my money accordingly. And I think it also says, you know, that things are getting optimistic when you look at people who are betting with their money. Investors are coming into the housing market, the Dow is on the rise. As the previous caller said, you know, there's leading and lagging indicators and you have to, you know, make the point between the two and make your own decision.

PENNER: Okay, well, thank you very much, Rick. A quick remark from you, Tom, then we're going to go into a break.

YORK: Yeah, I would say that one indicator that portends to perhaps better times ahead is the stock market. You know, the equity markets have gone up approximately 30 cents since – 30% since the low, which indicates that professional money investors see, you know, see some positive signs out there and they're putting their money into equities accordingly. So, you know, that could be a positive sign.

PENNER: Okay, we'll come back. We're going to talk more about the economy, the indicators up or down, and take your calls. This is the Editors Roundtable. I'm Gloria Penner.

# # #

PENNER: I'm Gloria Penner. This is the Editors Roundtable. I'm here at the table this morning with Tony Perry from the LA Times and Andrew Donohue from, and Tom York from the San Diego Business Journal. We're talking about the economy and all of the mixed signals, the lagging indicators, the unlagging indicators, and I was just thinking, before I go back to the phones because we have a lot of people who want to talk to us, I was just thinking about the success of the cash for clunkers program, which is over. I noticed that retail sales had increased in the last month or so even though home sales of furniture and home improvement merchandise had dropped but it was that the car sales that really kicked up the figures. Now that the cash for clunkers program is over, I'm wondering what's going to happen to that sector. What do you think, Tony?

PERRY: Well, the analysis that seems to strike a chord with me is the fellow who said that the cash for clunkers looks good but are these people who would not have bought a car in the next twelve to eighteen months? Or are these folks who were going to buy a car anyway in the fall when the new – nifty new models are out? So in other words, are we just getting a pump up now in this industry and we'll pay for it later? That's that kind of complexity that we really don't know where we're going to land. I think we have to remember the larger view, too, which is that middle class incomes have been stagnant for a number of years, healthcare costs, as we know, rising like it's going out of style, the cost of putting a child through a public university in California—I have two—is also zooming. So while we have the specter of the events that started late last fall, there are also fundamental changes, negative changes, that we're all going to have to live with for a long time.

PENNER: And let's hear with Simon in Rancho Bernardo has to say. Hi, Simon, you're on with the editors.

SIMON (Caller, Rancho Bernardo): Hi, good morning. I think we're basing all our hopes on lower visions and misleading indicators. It's funny that, you know, we always talk about the numbers, however, we forget to, you know, revisit the larger numbers that are being re – you know, readjusted. Like, for example, the past couple of months, inflation or deflation rates or unemployment. However, my situation or comment is about the unemployment. People simply – there's a fear with people on unemployment and there's just simply no capital outflow. People are – whatever money they're having they're just keeping it and not spending. The increasing retail sales, I would say, is like seasonal. One has to – with the, of course, cash for clunkers while also a lot of the students going back to school are needing to spend some money for, say, clothing or school supplies.

PENNER: And, you know, Simon, it's interesting because the word is, Andrew, that the nation's unemployment rate is expected to increase. Now San Diego's is already up there. We're at, what, 10.3%, which is higher than the national.

DONOHUE: Yeah, you know, the New York Times did a really interesting piece, I think, last – it was last Sunday on the front page where they sort of tracked a little cul de sac in Moreno Valley, California, and followed eight houses sort of for a year and the households there. And the one thing that was stark, first of all, was just how many foreclosures there were, how many people that were losing their homes, but how every single one of those people who lost their home have lost their jobs. And there were – the remaining people who hadn't lost their home, had lost their jobs just recently and were struggling to figure out how they were going to make the next month's mortgage. So it's definitely, you know, a huge problem and it's going to be reverberating through every sort of level.

PENNER: So that…

PERRY: I'm sure at the New York Times you can always sell a California horror story to the front page. I thought that story was considerably over the top but it was the view from New York that, ha, California, you thought you were something, you ain't much.

PENNER: But—but—Tom York, so, you know, with this kind of job market, can we expect more foreclosures as people lose their incomes and then can't pay their mortgages?

YORK: I think we're going to see more of that but I think we can look at a positive sign. You know, here in San Diego County, for example, discount stores have moved in, like Kohl's, and the discount stores at the lower end are doing really well. They're making money. Even Best Buy, which is an electronics store, they're scouting out two more locations here in San Diego County. So it's kind of a mixed picture in that, you know, where people are spending they're just spending less and they're being very cautious of where they do spend their money and I think discount stores are benefiting from that.

PENNER: Okay, Kevin in Vista is with us now. Hi, Kevin, you're on with the editors.

KEVIN (Caller, Vista): Hi, thanks so much. I think the analogy of going through a yellow light is pretty apt. I sit on the board of directors of a small community bank that's San Diego-based here. And the only thing that I would caution, and I know Tom has brought it up in the Business Journal, is that there's an awful lot of commercial real estate that were bought on SBA loans two or three years ago, primarily owner occupied, and those are all set to adjust.

PENNER: Wait, wait, wait. Kevin, for me, what's an SBA loan?

KEVIN: A Small Business Administration loan.

PENNER: Thank you. Thank you.

KEVIN: Yeah. That are set to adjust and that's going to have a pretty big impact. It'll be interesting to see how many of those small businesses can continue to survive when their upside down real estate in their business location.

PENNER: Let's get – Okay, let's get a response from Andrew.

DONOHUE: You know, that's a great point. A lot of these – You know, in commercial real estate you saw a lot of the same sort of risky, exotic mortgages that you saw wreak so much havoc on our residential real estate market, so you are seeing the same sort of problem. I mean, that's going to be – If you're having more and more foreclosures in the commercial real estate market, you're already seeing how many empty storefronts and how many empty, you know, commercial real estate properties all around town with for rent signs and I think – I think it's a great point and so much focus has been put on the residential housing market but the commercial one has a very, very similar underpinning.

PENNER: Well, Kevin, thank you for your call. And let's hear from Gil in Escondido. Hi, Gil, you're on with the editors.

GIL (Caller, Escondido): Hi. There's a great PBS documentary called "Ten Trillion and Counting." It's about the U.S. national debt and how the Obama administration is roughly going to double that over the next decade and that he's going to have to raise taxes on the middle class at some point to help pay for that. So I see higher inflation and higher taxes in the future so I was wondering, will that have a disproportional affect on San Diego compared to the rest of the country because we have a higher per capita income than the national average and probably a higher savings rate. So any cash in the bank will tend to reduce in its buying power.

PENNER: What do you think, Tom York?

YORK: Well, I think the Obama administration has painted itself into a corner. I think if they go out and try to raise taxes on the middle class, it's going to further slow the economy and it's going to further force them to print more dollars. It's a no-win situation.

PENNER: Gil, thank you. And did you – This morning there was an article about how we are going to end up paying more taxes anyway in the state of California as the various indexes adjust for deflation, which means that we'll be moving into higher tax brackets at a lower income. So let's say if you were in tax bracket 30% and your income was $50,000 and now your income is $50,000, you're going to move into a 35% tax bracket. Those are just figures. Do you know about that, Tom?

YORK: I do. It's the State Franchise Tax Board is resetting the tax brackets which means that we're going to be paying marginally more money. It's kind of interesting at a time when people can afford to pay less money towards government, government's stepping into the fray and raising taxes all over the board. We just had that in the state legislature back in February. And that's further going to put a damper on the economy. I mean, the government sector has moved in a big way, you know, increasing taxes especially at the state and local government and it's going to have an impact down the line. It's going to slow the recovery.

PENNER: Oh, our pocketbooks. Well, with that I think we'd better move on because we have so many other things to talk about this morning but if you want to comment about the economy, please go to on the Editors Roundtable page and we can hear your comments and respond to them as well.

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