Business Update with Mark Lacter

So Cal job economy

KPCC's business analyst Mark Lacter talks about why Southern California's job industry remains sluggish.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, we've talked in the past about the strength of the local jobs economy, so why can't it get out of its rut?

Mark Lacter: There's no one reason Steve, which is one of the frustrations in trying to figure out when things will start improving in a significant way. Certain problems we know all about - the Southern California construction industry has taken a huge hit since the recession, government employment is being cut, and the housing market continues to be in the doldrums. May home sales were down more than 17 percent from a year earlier, which means that all the ancillary industries - areas like furniture, home improvement, interior design, appliances - those will be sluggish as well. Without an improvement in housing, the jobs picture is likely to remain weak, and without an improvement in jobs, the housing picture is likely to remain weak. Thing is, it's more complicated than that.

Julian: Puncture the surface and find what?

Lacter: Well, there's been the decision by many business owners to hire as few workers as possible. Not because they can't afford it, but because they've just found it more profitable to automate their operations rather than having to deal with stuff like health benefits and vacations. And anyone who has tried calling a company only to get an automatic phone system instead of a live human being can appreciate what's going on. Since the start of the recession, spending on employees has increased by 2 percent. During the same period, spending on equipment and software has increased by 26 percent.

Julian: And I guess the jobs that have been lost to automation are simply not coming back.

Lacter: That's probably the biggest frustration about this recovery: In recessions going back 20 or 30 years, companies would lay people off when business was soft and then bring them back when things improved. These days, companies still use the term "layoff," but they don't mean layoff - they mean fire. These are permanent displacements running into the millions, and as we see by those high unemployment rates (still around 12 percent in California at last check), finding a new job with a new company - often in a new industry - is proving to be hard. Now, having said that, let's keep in mind that in the first four months of the year California has added more than 100,000 payroll jobs, which is not nearly enough to get back to where things were pre-recession, but is not small potatoes either.

Julian: So why all the talk about the possibility of another downturn?

Lacter: Most likely it's because we've been programmed to expect the worst out of this economy, whether it's true or not. There's an amazing CNN poll out that has 48 percent of those sampled saying that a depression was likely in the next 12 months. Now, let's all agree that the economy is not growing at a very strong pace and the unemployment rate is not dropping by nearly as much as we'd like, especially in the L.A. area, and there are all kinds of worries about unrest in the Middle East. But, that's a whole lot different than saying a depression is right around the corner. Just as a reminder for those of us who weren't around 80 years ago, the unemployment rate during the Great Depression topped out at 25 percent (more than twice as much as it is now).

Julian: Is this a case of the media creating the news?

Lacter: Maybe not creating, but certainly exaggerating – and it becomes part of the narrative. A New York Times/CBS poll had 63 percent saying that Congress should not raise the debt ceiling, even though the vast majority of experts say that such a move would be a disaster. But the pollsters choose to highlight that number, which of course puts a lot of pressure on Congress to somehow accommodate that position, no matter what. A lot of misinformation is directed at the California economy, which is routinely labeled among the worst in the country, even though it's really not (actually, its growth rate last year was better than many states, including Florida, Arizona and Georgia). Point is, when it comes to the economy these days, don't believe everything you hear. Don't even believe everything you think.

Lacter: Okay, I believe you....

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


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