Friday, July 2, 2010
The USD Index of Leading Economic Indicators has showed signs of improvement for 14 consecutive months, but there are still areas of concern in the local economy. We discuss the positive and the negative economic indicators, and the predictions for the next year.
GLORIA PENNER (Host): The second quarter of the year has just ended and attention is focused on the economy, whether economic recovery can be sustained, the drop in consumer confidence in June, and the outlook for jobs. And while the nation is presenting one picture, San Diego’s economy is running on its own track. So, John, we want to focus on the local economic landscape but we need to put what’s happening in San Diego against the national picture. Now stocks finished yesterday with their eighth loss in nine sessions and they’re now at a new 9-month low. Why are investors so discouraged?
JOHN WARREN (Editor/Publisher, San Diego Voice & Viewpoint): Well, I think the investors are discouraged for a number of reasons. If we look locally, while housing prices might be creeping up some, one of our local indicators is permits for new construction. That has moved a little bit but it hasn’t moved that very much. And so we have a construction industry with a lot of people out of work, jobs are not coming, and we have changes in the banking laws in the regulation of financial institutions that are making investors hold more tightly to their dollars because the stimulus has not left people with the consumer confidence that we want to see in terms of generating spending. So all of this comes into play locally, and it appears that we’re doing much better than the rest of the country in terms of some of our numbers but it’s still not enough for people who want to spend more.
PENNER: Okay, I want to talk more about this perception that San Diego is doing better than the rest of the country but let’s take a look just one more time at the rest of the country. Ricky, the news this morning is, at least in the San Diego Union-Tribune on the Business page, there were headlines saying in essence are we heading for another recession or a double-dip recession? Is there a feeling that the economy – that the recovery has stalled and that we are, indeed, seeing another downturn?
RICKY YOUNG (Watchdog Editor, San Diego Union-Tribune): I think for several months we’ve seen halting progress. You know, there’ll be good news then bad news then good news, you know. I remain hopeful that somehow the good newses will start overtaking the bad newses as we move forward. But…
PENNER: That – And that’s it?
YOUNG: That’s it.
PENNER: Okay. Our number is 1-888-895-5727, 895-KPBS. We’re talking about the economy, jobs in the economy, it’s on everybody’s mind these days even if you have a job. And I would like to ask our listeners is your sense that we are heading for another recession or a double-dip recession or do you feel that the recovery, mild as it is, can be sustained? 1-888-895-5727, 895-KPBS. David, economist Alan Gin at USD came out with his quarterly report, as he always does. And he says that one difficulty for the recovery is the financial problem at all levels of government, but isn’t that the chicken and the egg issue? That a down economy means less revenue for government to operate on and that squeeze means fewer government jobs and fewer government contracts to stimulate the economy.
DAVID KING (Founder/Editor, sandiegonewsroom.com): I wouldn’t call it a chicken and egg problem, it’s a perpetual vicious cycle here you’re going to have. You know, there’s – I heard Mary Salas one time, proud that the State of California is the biggest employer in her district so if you’ve got a district where the State of California is the biggest employer, you get a state budget problem, then look at what happens to your district and how is, you know, the taxes generated in your district going to reinforce the State of California? It’s absolutely a vicious cycle. I wouldn’t say that the only problem facing San Diego is government budgets. I think San Diego still needs to address longterm business infrastructure issues so that smaller businesses can grow to be bigger and create more jobs. We need to focus on approaches within the private sector to create jobs.
WARREN: Well, I think Gin is doing something very interesting here. When he shifts to national and state, he’s saying that we would really do better but we can’t control these variables in terms of what – we got a $19 billion deficit in the state, and we just had the governor kick back the minimum wage to the – the federal minimum wage yesterday because that’s lower than the state while we’re trying to get money. So he’s – I see this indicator as a chance to make people feel better. I mean, you look at the fact he says in San Diego, we have a $24,000 average debt per person and yet we have credit scores above 700, and this is average. Well, that’s not average when you look at how many people are unemployed, gone through foreclosures, lost their jobs, lost their credit ratings, and have none of these things happening. So it gets to be kind of a false sense of we’re doing something when we really aren’t. We need about a 3 to 5% sustained growth in terms of the consumer index over a period of at least two or three years before we can see a turnaround. And everything says we’re going to be this way for at least the next 18 to 24 months.
PENNER: I am going to come back to you on that, John, about that 3 to 5% growth because I want to know where it’s going to come from in your mind, but let’s go to Debra now. Debra in UTC wants to join us. Our number is 1-888-895-5727. Debra, you’re on with the editors.
DEBRA (Caller, University Towne Center): Hello.
DEBRA: Yes, I’d just like to say that I do think that we are going to go back and – or at least have another recession or double-dip recession. I think a lot of it will be because of housing in California, especially San Diego. I think that about 50% of the people that live in San Diego are renters and landlords have the confidence again to raise their rents and they’re doing so. So what is going to happen is the consumer loses confidence, pulls back, stops spending, stops going, you know, going to, let’s say, restaurants or spending so much at Walmart, etcetera. And until the housing situation can get under control in San Diego and California, I don’t see much hope at all.
PENNER: So, Debra, let me just ask you, you mean under control, you mean that home prices need to drop? Is that what you’re talking about?
DEBRA: Drop, and the cost of renting.
PENNER: Well, the cost of renting is a separate issue.
DEBRA: But that has a lot to do with the economy and why people are not spending money and holding back.
PENNER: Okay, thank you very much, Debra. Ricky, San Diego was one of the few major metropolitan areas where home prices really did increase in April from a year earlier. According to Debra, that’s not a good thing.
YOUNG: Yeah, by one of these measures, we were the top market in the country, as I recall, in the last week or so in terms of increases. You know, obviously that cuts both ways, as do rent increases. And it all does feel a little precarious, you know, but all of that is a sign that things are improving if landlords think they can raise the rents. Now, maybe they do turn everything off and that creates a downward spin of some sort. I think the – that what’s going to be the key is after months and years of government sort of trying to prop the economy up with, you know, housing credits and cash for clunkers and stimulus money, you know, what – will that go away when we start caring about the deficit again and then will the economy be able to stand on its own? As we’ll talk about in our next segment, you know, the federal stimulus dollars in schools are going to be going away and what’ll happen then? You get some, you know, more teacher layoffs and they’re not spending money at the restaurants and, I mean, it’s all rather precarious and, you know, but, as I said before, I remain hopeful.
PENNER: You remain hopeful, so you’re one of those who is on the plus side of consumer confidence, is that true?
YOUNG: That is correct.
PENNER: All right. Well, let’s hear…
YOUNG: I’ll do what I can to move those scores up.
PENNER: Let’s hear from Manny now in San Diego. Manny, you’re on with the editors.
MANNY (Caller, San Diego): Yeah, I wish I could have a more optimistic spin but I listened to my president give a speech on immigration yesterday and he talks about, in reality, how it’s virtually impossible to control the border yet this very same administration claims that they can control the CO2 in the air. I mean, you have a show one day where you talk about the need for, say, two and a half, three percent economic growth, and next week you have a show about how we have to cut our carbon footprint. I mean, it’s – you have all these cross purposes working against each other and this factors into a regulatory nightmare and you can’t blame businesses for coming to the conclusion that this administration—and I mean federal, state and local, from top to bottom—has waged war on the productive class.
PENNER: Thank you, thank you, thank you so much, Manny. We appreciate your point of view and we’re going to respond to it as soon as we come back after a very short break. This is the Editors Roundtable. I’m Gloria Penner. And we will return. We’ll continue talking about the economy and talk a little more about the unemployment rate and whether people have stopped looking for jobs.
PENNER: This is the Editors Roundtable. I’m Gloria Penner. I’m at the roundtable today with Ricky Young and John Warren and David King, and we’re talking about the economy and jobs and whether things are getting better or worse or staying the same. And we just heard from Manny who is obviously, you know, really upset about what’s going on. And I’m just wondering, Ricky, when you look at photos of individuals during the Depression of sixty years ago, the faces are marked with a sense of hopelessness and despair. Has loss of hope taken hold in this, quote, jobless recovery with large numbers of people no longer even looking for jobs. I mean, the labor department came out with figures this morning saying 625,000 people aren’t even looking for jobs anymore. They’ve pulled out.
YOUNG: There is obviously a lot of despair out there and a lot of people hurting. I’ll just say again, I feel like things are turning around. One thing that you’ll see that’s interesting, though, is kind of a lag where as these things affect governments, governments turn around and there’s sort of a delay where they’re building their budgets around times that were very, very bad and so you’ll see things like Mayor Sanders this week starting to consider a sales tax increase to help the city budget because they’re building budgets around times that remain pretty bad. And so will those kinds of actions make things even worse? It’ll be interesting to see.
PENNER: Well, it’s true that you have these long term unemployed people, John, and they do need government assistance to survive. We have these reduced revenues from income taxes and property taxes and sales taxes when people don’t go out and buy. Are our local governments in a position to help the needy?
WARREN: That’s a very good question because we have seen demands or requests for increased donations in terms of the Food Bank, the homelessness in terms of some 8,000 people at least being on the streets and that’s beyond when we have the shelters. Our unemployment numbers are still up, and the Congress, just this week there was a battle in the House to get more extended benefits. There was a time that 26 weeks was considered an exceptional extension, and now we have people who are just unemployed and there’s no change. We used to average about 300,000 new claims a week. We’re up to 426 and that’s down from the 500 over last year. So, yes, on the one hand, the economy is better but we don’t have the job growth, we don’t anticipate it. Only 41,000 jobs created in the second quarter and what’s happening is that society as we know it is changing and that means with that change there’s going to be this period of continued unemployment while people figure out where they’re going to fit in. The government can’t do but so much of that.
PENNER: Okay, well, and David.
KING: Well, we don’t want to take – I – We’re going to hear some heart wrenching stories about people whose unemployment insurance ends and they’re going to suffer terrible consequences but we don’t want to take our public safety net and turn it into a hammock. We don’t want to create a system where I, for example, I knew a guy from Scotland who used to go in every year and renew his unemployment benefits because he would tell the people that his job, he was a magician and he just can’t find any work as a magician. That was the only thing he was trained for. We don’t want to subsidize unemployment and create more of it but it is going to be unfortunate the consequences to people whose unemployment benefits are cut off and there are simply not jobs out there for them to take.
PENNER: Okay, so, David, what new economic policy might create jobs?
KING: Well, we’re just stuck in a pit right now and it’s hard to know exactly what will create jobs. It’s easier to point at things and say those will be job destroyers. We – Through the Bush years, we’ve had more than enough tax cuts but do we have lasting benefits from that? Probably not, I wouldn’t say. I mean, do we have lasting benefits that we’re feeling today? No, we’re still stuck in a recession right now. It’s as though we’ve gone from two different parties, we went from the irrational exuberance in the tech sector in the late nineties and early 2000s, then irrational exuberance and, oh, I can only make money by investing in property. It’s like going to two different parties serving two different types of liquor and now we’ve got a protracted hangover from both of them and it just takes time to shake it out.
PENNER: Well, we’re going to turn to one level of government in a moment but first I’d like to hear from Dave in La Jolla. He’s been very patient. Dave, we’d like to hear what you have to say on the Editors (sic). Go ahead.
DAVE (Caller, La Jolla): Hi. Thank you very much for taking my call. I think that the big picture of what we’re going through right now is just the end result of supply side economics but my comment is that there’s too much focus on the housing industry, which is basically a by product of the economy. And if the stimulus packages included a stipulation or something for banks to make construction loans at very low, like half-percent, all of a sudden the – even if it just sparks a little – a small percentage of the industry, nationwide industries would start moving, people would have jobs, and then money would start flowing and people could afford to buy houses. You can’t just sit here and try to figure out how to make housing affordable when nobody has any work.
PENNER: Well, you’ve stimulated a lot of interesting expressions on the editors’ faces but I’m going to hold off on their response to you because I want to take one more call and then we’ll respond to both. Dan in Carlsbad. And thank you very much, Dave. Dan in Carlsbad, you’re up next.
DAN (Caller, Carlsbad): Yes, hi. Thank you for taking my call. I am a construction project manager with 30 years experience and there is no recovery. I have been out of work since February. There is no end in sight for me because I know my other friends are not surveying for construction and once the unemployment extensions end, it’s just going to get worse. So there is no recovery. I don’t know where the facts and figures are coming from but that’s just my personal opinion.
PENNER: Thank you very much, Dave – Dan. Let’s have some responses to both Dave and Dan. You want to start with that, John, quickly.
WARREN: Well, first let’s say in terms of the banks, I do not see this country moving to do anything else for banks. Banks brought us part of this problem in terms of financing and being involved in the whole subprime scenario. We’ve seen the dishonesty in terms of Wall Street, so, no, help will not come from there. On the latter caller, I think he’s absolutely right. This is a part of the 18 to 24 months that we’re looking at without any real change or turnaround because people are holding their monies. There’s a lot happening with equity capital and ventures and people are not making investments. The market is down. So we’re stuck here, and that adds some question as to these reports that we get. The indicators that things are getting better when all around us we see signs that things are not changing.
PENNER: So take that, Ricky Young.
YOUNG: Well, the city council agreed to move forward with the downtown library this week. That’s going to bring some jobs. That was one of their main reasons for supporting it.
PENNER: And there’s possibly a new city hall on the books.
YOUNG: Yeah. I don’t know if we’ll see that move forward because that is probably not quite as popular an idea with the public but…
PENNER: So you think downtown public buildings are maybe the way to go here?
YOUNG: Well, I do – you know, I mean, it’s like all the government stimulus from the feds on down. It was certainly pitched as a project that would bring jobs. I don’t know if it’ll help our caller, you know, and I know that everybody can’t be building city halls and libraries but it’s something.
PENNER: Okay. Final, fast remark, David.
KING: The point Dave makes is of particular importance to San Diego. Nobody that owns a home today wants to see property values decline any further but the excessive value of property here in San Diego does depress productive capacity. Money that’s invested in a home doesn’t make widgets. Money that’s invested in businesses makes widgets. So the excessive property cost here depresses the amount we have for production.
PENNER: Okay, thank you very much, David. And let’s move on because we have another aspect to discuss of all this.