Explaining Southern California's economy

California real estate market is stranger than it's ever been


That's the takeaway from today's California Association of Realtors Housing Market Forecast for 2013. CAR Chief Economist Leslie Appleton-Young presented the data, and the date is...basically unprecedented. Appleton-Young said that she's never seen a market quite like it.

However, she doesn't think that the market is distorted. You could be excused for thinking that it is. For starters, according the the CAR, prices in California fell almost 60 percent from their bubble highs before the financial crisis. But at the moment, several factors are intersecting. There's not enough supply to meet housing demand in the state. Combined with historically low interest rates, this is pushing up prices. And investors snapping up properties they consider to be historically underpriced are sweeping into the market, using all-cash offers to gobble up homes.

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The gruesome tale of declining U.S. economic growth

Scott Olson/Getty Images

Workers build a Jeep Compass at the Chrysler assembly plant in Belvidere, Ill. U.S. growth continues to contract despite a good performance by the auto industry.

There were plenty of reasons to be optimistic about the U.S. economy at the tail end of last year. On balance, the year had been pretty miserable, growth-wise, up to that point: gross domestic product grew less than two percent. But the fourth quarter came in at double that, a surprising 4 percent. The stage was set for some real if not spectacular economic recovery in 2012.

The first quarter initially looked good, as we started to add 200,000-plus jobs. But when the GDP numbers started to roll in, we could see a repeat of an old pattern: the year begins with promise, only to hit headwinds by spring. In 2011, in was the Japanese earthquake and tsunami, a spike in oil costs, and the debt-ceiling battle and ensuing U.S. credit downgrade by S&P that smothered progress. This year, it's been ongoing troubles in Europe, plus a hot summer and drought that damaged agriculture, which had been one of the unsung stars of the recovery.

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Comparing California's economic growth to the US and the world

US-World-CA-GDP

LAEDC

Take a look at how their economies would stack up if California and L.A. County were countries.

The Commerce Department released its figures for second-quarter U.S. GDP growth this morning. Growth was weak, and that's something to worry about. But it's also an opportunity to compare U.S. growth with California's, and to compare California's to the rest of the world.

Conveniently, the LAEDC recently compiled this data into a nice, neat chart (above). It actually isn't technically possible to compare the GDP of a U.S. state with the GDP of a country, but for the sake of argument you can pretend that California is a country, just to get a sense of how we're doing. Besides, California's economy is so large — nearly $2 trillion in the context of a $15-trillion-plus U.S. economy — that it's routinely talked about as if it were a country.

Indeed, if it were a stand-alone economy, California would be the world's ninth largest, coming in just above Russia and just below Italy. But let's compare California to the rest of the world in terms of growth. First off, the Golden State saw growth last year that was actually better than the U.S. — 2 percent for Cali, versus 1.8 percent for the U.S. 

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Economic growth still slow in the USA

NYSE trading floor

Spencer Platt/Getty Images

Trades at the New York Stock Exchange. They'll probably take slow U.S. growth in stride and remain focused on troubles in Europe.

The Commerce Department today released data on the second-quarter performance of the U.S. economy, and the best word to describe that performance is "pathetic." The economy expanded by 1.5 percent, after growing by a revised 2 percent in the first quarter (up from the previously reported 1.9 percent).

It could have been worse (Double secret pathetic?). But for the first half of 2012, the economy is staging a repeat performance of 2011, when the economy grew at a rate of 1.8 percent for the entire year. 

Despite the bad news, the economy is still growing. That will keep the threat of recession at bay, even if many Americans, especially those among the ranks of the unemployed, feel like the Great Recession never went away. The U.S. is on the road to have a $16-trillion economy by 2012-13, by far the world's largest.

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California's economy is headed in the right direction, but recovery will be slow

Los Angeles skyline

David McNew/Getty Images

Los Angeles should start to catch up on its economic recovery in 2012 and 2013, according to LAEDC economists.

The Kyser Center for Economic Development, part of the Los Angeles Economic Development Corp. (LAEDC), has just released its 2012-13 mid-year forecast for the nation, the state, and various metropolitan regions in the Southern California. The data contained in the report is considerable, so I'm going to focus on the national and regional picture in this post, with an emphasis on Los Angeles County.

The Kyser economists aren't predicting a recession in 2012 or 2013. But they do anticipate sluggish, subpar growth: 2 percent GDP growth in the U.S. for this year, and only 2.2 percent growth for next year. They don't see the unemployment rate falling nationally by much over the next two years. It's currently at 8.3 percent — and by the end of next year, it will be at 8 percent.

There's a very big however in all this fairly grim prognostication: inflation should remain low for the 2012-13 period. This means that we're not seeing a repeat of the dreaded "stagflation" of the 1970s, when we had weak growth, high unemployment, and prices rising through the ceiling. What's happening now is different: the economy is wading through muck and mire, struggling to make any gains, and people have become so frustrated with the job market that they're dropping out completely, possibly never to return. I call this this "stuckflation." This is an economy that isn't tipping into recession, but that can't gain any momentum.

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