The Commerce Department busted down its previous estimate of GDP growth in the second quarter from 1.3 percent to 1.0 percent.
This is a major problem for California, where the unemployment rate of 12 percent is almost three percentage points higher than the national rate of 9.2 percent. In Southern California, it's even worse. L.A. County is at 12.4 percent. Other counties are even higher
A lot of economists now think that GDP growth –which, in a "normal" recovery should be running at something like 5 percent – will muddle along for years, slowly improving, but grinding down the rolls of the unemployed more like a guy with sandpaper than a guy with a belt sander.
In Southern California we have another problem. A significant chunk of the unemployment we're dealing with is related to the housing industry, which may take much longer to recover than the economy as a whole. There are some macro-economic trends, related to household formation, that bode well long-term. But by that, we mean LONG TERM – as in workers not going back to building new houses until the middle of the decade.
The damage that the financial crisis did is profound. This is from a report by the Joint Center for Housing Studies at Harvard:
While estimates vary widely, the Current Population Survey indicates that household growth averaged about 500,000 per year in 2007–10. This is not only less than half the 1.2 million annual pace averaged in 2000–7, but also lower than that averaged in the 1990s when the smaller baby-bust generation entered the housing market.
This is a tough nut to crack. The state government can't do much to help, so it's really all up to the Federal government to commit to either a stimulus solution or to prevent more foreclosed properties from hitting the already glutted market. What worries me is that we'll see nothing but inaction until after the 2012 election. That could mean double-digit So Cal unemployment until…Gulp! 2014! Assuming whoever is running the show in 2013 can provide some tangible relief.