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Expert on CA Economy Says State Hasn’t Lost Mojo Yet

Audio

Aired 4/20/09

This is a rush transcript created by a contractor for KPBS to improve accessibility for the deaf and hard-of-hearing. Please refer to the media file as the formal record of this interview. Opinions expressed by guests during interviews reflect the guest’s individual views and do not necessarily represent those of KPBS staff, members or its sponsors.

MAUREEN CAVANAUGH: I'm Maureen Cavanaugh and you're listening to These Days in San Diego. The new numbers about California's unemployment rate are grim. We're up to a 10.5 percent jobless rate. It's our second straight month of double-digit unemployment and it has many pundits bemoaning the end of the California dream. My guest says those pronouncements are premature. As bad as things are now California is not being hit by this deep recession much worse than anywhere else. And he says we find ourselves uniquely poised to take advantage of the new technologies that will get the world out of this economic mess. But the question is can California get its act together to take advantage of the opportunities ahead? My guest is Steve Levy, the director of the Center for Continuing Study of the California Economy. Steve, welcome to These Days.

STEVE LEVY: Hello and thank you for having me.

MAUREEN CAVANAUGH: Well Steve the California unemployment rate sits as I say at 10.5 percent. Did you expect it to be quite as high?

STEVE LEVY: I think most economists realize that were in what's come to be the deepest recession since the Great Depression. We had a year between 1982 and 1983 when the unemployment rate was over 10 percent for 12 straight months and we're probably going to equal or exceed that. This is a very deep recession but the February numbers were not that surprising from what we knew from the national numbers.

MAUREEN CAVANAUGH: Now why is it that California's unemployment rate is so high?

STEVE LEVY: Partly the state is relatively hard hit because we were one of the centers of the housing bubble, as was San Diego, and so construction and finance-related job losses here are somewhat higher, partly because we are a center for international trade and trade is plunging, but partly because last year people kept pouring into California's labor force despite the fact that we were losing jobs and so we had very very high labor force growth about 350,000 people joined the labor force in California and kind of instantly became unemployed. So part is job losses and part is the continuing growth in population and labor force at a time when jobs are disappearing.

MAUREEN CAVANAUGH: Now Steve when you say "immigration into the California workforce" the thing that immediately pops into mind is people from Mexico but are you talking about people from other parts of the state too?

STEVE LEVY: Most of the people that go into the labor force are either people graduating from high school and college and now there is some evidence that people who were previously retired have joined the labor force so most of the increase in the work force is from people who were here. Most of the immigration is foreign immigration from all around the world and those people have been waiting 5 to 10 years to get permits to come to California and weren't about to change their decision. There is some evidence that unauthorized immigration which is very very sensitive to labor force trends is actually going down that there are actually fewer unauthorized immigrants in San Diego and the state that they were a year ago.

MAUREEN CAVANAUGH: Thank you for clarifying that. I see that you report the Center for Continuing Study of the California Economy "Numbers in the News" even though were on the high end of the unemployment rate the overall idea is that we are being hit by this recession in sort of an average way we're right where most other states are in the impact of the recession would you agree with that analysis?

STEVE LEVY: Certainly. There are a lot of states that are being hit worse and some that are doing better but the main point for listeners is that this is a national phenomenon, a worldwide phenomenon, this is a horrible vicious cycle and it's affecting families everywhere. There's nothing really special about California except our over participation in the housing bubble which makes it special. It's not like in the 1990s when San Diego and Southern California where the center of these aerospace job losses and they really weren't anyplace else. So people should realize that there's nowhere to go for jobs. All of the states are hemorrhaging jobs. It's not like the earlier times when you could leave California and go place someplace to a better environment. We're all in this together.

MAUREEN CAVANAUGH: And Steve if he would like you to talk a little bit more about how this recession differs in its impact on overall employment from the recessions that we faced in the 1990s in the dot com bubble of the early 2000s.

STEVE LEVY: Sometimes states industries can lead to recession and really different than the nation sell our aerospace job losses in the '90s made Southern California special we had a much longer and deeper recession and the.com losses in the Bay Area in 2000 where most of the nation was saying "What recession?" The comparable place now would be Michigan where the auto industry makes Michigan specially vulnerable in its losses are probably going to be long-term losses so Michigan is clearly suffering worse than anyone else. But right now we have this massive shortage of customers. People and businesses and other countries in the world have simply stopped spending. That's why the federal government is trying with a whole host of stimulus policies to be a customer and put money in our hands so we can once again be customers.

MAUREEN CAVANAUGH: Now did anything surprise you when you compiled these unemployment numbers?

STEVE LEVY: I think it was surprising that people continued to enter the California labor force for whatever reason when there were no jobs. If our labor force growth was twice the national average, if we had just been an average state our unemployment rate would've been closer to 9 percent. At 10.5 percent it's still high. This is a terrible recession by any stretch, but part of the very high unemployment rate is labor force growth. And just so listeners know earlier this week Oregon reported 10.8 percent unemployment rate. These high rates are going to be everywhere soon.

MAUREEN CAVANAUGH: Now I want to turn this around because your report actually is not all delinquent but I do want to ask you that if this situation continues to worsen on the unemployment front what new issues might we encounter

STEVE LEVY: I think the president and most economists are correct when they say we need to expect maybe six more months of job losses and even a few more months after that of rising unemployment, so were not at the bottom yet. It could take some time for the policies to begin to work which I think they will. The deeper the recession goes besides families, the victims are local governments and state. We're going to have very very difficult situations for local governments in San Diego and elsewhere. The deeper the recession goes there's just going it be incredibly difficult budget choices. I'm hopeful we'll begin to see a turnaround by the end of the year and that people will see some of the federal stimulus and housing policy taking shape before then.

MAUREEN CAVANAUGH: In mentioning the stimulus money and the goals for the future, in this report from the Center for Continuing Study of the California Economy, you say that we in California are poised to expand into the very technologies, the very kinds of services that are going to bring the world out of this recession. Can you explain that for us?

STEVE LEVY: Certainly. If you take the San Diego economy or the broader statewide economy, our strengths are the applications of technology and creativity to the design of products and services. Biotech, alternative energy, the medical records technology, stuff that Obama is talking about. We have an administration and a world that is more and more emphasizing science and application of technology to producing goods and services. And the federal funding and world demand is going to go that way. The world economic recovery which will come in a year or two means that trade and tourism which are important in the state San Diego art will be strengths so if you can see beyond 2009 if we get there in California and Southern California is well-positioned for the world economy is going. We had two challenges really to reviving the California dream. One was that our housing prices had gotten way out of whack in San Diego and elsewhere. And the only silver lining in this extremely deep plunge in housing prices is that housing is now affordable. And you're seeing People at these very low foreclosure prices begin to buy homes and that's even before all these mortgage and refinancing policies step in. So I think that we've turned that housing affordability issue around for the future and were left with really political gridlock that we saw on the budget. Can Californians across the state really agree on a set of policies to approve budgets and approve budgets that make the state a great place to work and live so that people entrepreneurs and families will come here we haven't completely solve that one yet.

MAUREEN CAVANAUGH: That was a very interesting part of the report because you basically are saying that we have this potential but we don't seem to be able to muster the public policy will put that potential into a place where we could use it

STEVE LEVY: There certainly been some difficulties in that we have a basic disagreement among the parties over what's the best way to support economic prosperity. We have problems with the budget. The good news is that our future is in our hands. We have a good set of industries and really the national and world economies are going our way. The bad news is that we seem… except for the infrastructure funding where people can San Diego and across the state are approving large amounts of bonds for the future, the residents see hope for the future and are willing to put up some money but we haven't been able to translate that into an effective consensus in Sacramento.

MAUREEN CAVANAUGH: Now as you continue to monitor the unemployment rate in California you break down the statistics what signs are you to be looking for for improvements in the state economy and the jobless picture. Is it all about the housing market?

STEVE LEVY: No. Look for a couple, one is consumer spending is still 70 percent of the economy most of the federal stimulus package is oriented to improving the income of consumers and also the government being a direct customer where they're rising houses and supporting infrastructure. So I would look for an increase in job levels for steps of the bottom line. And before that some turnaround in consumer spending and infrastructure projects that people can see in San Diego getting started. And also as you said a bottoming in our housing prices and some reduction in mortgage rates that'll put money in the hands of consumers. The unemployment data will come later it's a lagging indicator.

MAUREEN CAVANAUGH: But as far as you're concerned, and so funny how you put it, California hasn't lost its mojo yet.

STEVE LEVY: No. We're in a horrible vicious recession along with most other families throughout the country, so I don't want to put down the burden on families. This is really very very critical situation. We don't know the extent to which the federal stimulus will take effect. I'm hopeful. All I'm saying is that it's not unique to California. This isn't some horrible thing in California and everyone else is doing fine. That's the part that's not true.

MAUREEN CAVANAUGH: Thank you so much for sharing the breakdown of this report with us.

STEVE LEVY: You're welcome.

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