Business Update with Mark Lacter

California's economic recovery

KPCC's business analyst Mark Lacter talks about the state of California's economic recovery.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, what do you see when you examine the California economic recovery?

Mark Lacter: What a weird recovery Steve – it’s really been a hit-and-miss recovery that has certain kinds of businesses doing pretty well, especially if they’re in areas like technology, entertainment, and marketing. And you can see this with the increased activity from the venture capital firms – those are the folks who invest in up-and-coming companies with the hope that they can sell them off in the future at a nice return. To give you an idea of what’s happening, of the venture deals in the country during the January-to-March period, California had 40 percent. Matter of fact, the atmosphere is getting to be a little like the 1990s when there were huge amounts of investment money available – except that this time around investors are being a lot more selective than they were back then in deciding what companies to buy into.

Julian: What can you point to in southern California?

Lacter: Well, there’s a movie production company that received $40 million in funding. There’s also a shopping Website for home decorations, several social networking sites – those are the areas that seem to be doing well. Now venture funding is not always the most reliable measure of what the economy is doing, but then you check out the early tax returns coming into the Franchise Tax Board that show the state taking in more money than had been expected (so perhaps the state budget deficit isn’t going to be quite so high).

Julian: That’s interesting, since much of the state tax revenue is dependent on higher income earners…

Lacter: … right, and many of those higher earners are involved in entertainment and technology, the very industries that seem to be picking up speed. Unfortunately, not all industries are picking up that same kind of speed – certainly not with an unemployment rate still over 12 percent. And you can see that with the most recent L.A. Times/USC poll showing that only 29 percent of the respondents thought the state economy was starting to improve. So either most Californians are just late to the party, or the party may not be nearly as happy as those venture capital numbers would lead us to believe. Like I said, a weird recovery.

Julian: Mark, should we be optimistic when there’s a drop in foreclosures?

Lacter: Steve, I would love to be optimistic about the housing market – and it’s true that foreclosure filings in L.A. and Orange counties fell about 12 percent in the first quarter. But a lot of that had to do with various holdups in the mortgage industry (loan servicers still have to deal with regulatory and legal challenges.) Now, the experts have been warning us that once those holdups get cleared, we’re going to see another wave of foreclosures. Maybe that’s true, maybe it’s exaggerated (it’s really hard to say), but the overall effect is that prices are still way down, new home sales are way off, and there’s very little incentive for conventional sellers to get into a depressed market. Foreclosures and short sales accounted for 51 percent of the market in March, which is still crazy high.

Julian: Can the recovery gain traction when the real estate business is in such bad shape?

Lacter: Well, sort of. This is the economy’s split personality – and it helps explain why, despite relatively decent growth, the mood out there remains so gloomy. You know, hearing about some tech company getting venture capital money is fine, but it doesn’t mean nearly as much as seeing the price of gasoline head higher every time you pull into the gas station – or being told that your house is worth $100,000 less than it was before the recession. Those are not necessarily the most important indicators, but they’re the ones that people pay the most attention to – and they’re not looking so good.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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