KPCC's business analyst Mark Lacter discusses unemployment, housing, and consumer spending in California.
Steve Julian: A strange thing happened last week when the federal government came out with that routine weekly report on claims for unemployment insurance. The number of filings fell so sharply that the immediate assumption on Wall Street was that one of the states - namely California - had not reported all its jobless claims. Is this true?
Mark Lacter: Well, it turns out that the state had reported all its numbers, Steve - it's just that, to everyone's surprise, there were way fewer people who applied for unemployment benefits. Now, these are very volatile numbers, and it's possible that claims might spike back in the next few weeks (we'll know more on Friday when the state releases its September employment report). But there really could be something to this decline...
Julian: ... as in the economy might be getting better?
Lacter: Don’t say it too loudly. It’s certainly noticeable with Southern California home prices, which shot up 12.5 percent in September compared with a year earlier - and perhaps more importantly, the number of homes that sold between $300,000 and $800,000 rose 11.5 percent. That category had been going nowhere because homeowners didn't want to put their homes on the market when prices were so depressed. Actually, inventory remains quite low (I saw a home over the weekend that they're expecting to sell for $100,000 above the asking price). So, you match this limited inventory with record-low mortgage rates and pent-up demand among first-time buyers.
Julian: But the housing market isn't anywhere near "normal" right?
Lacter: That's right. The California Association of Realtors only expects a 6 percent increase in median prices next year, which would still put it way below the peak of more than $560,000 in 2007 (seems like a long time ago). And, all this assumes that the overall economy does not suffer some unanticipated blow, such as an impasse in Congress over spending levels, a huge drop in the stock market, a collapse of the euro - there are lots scary scenarios. Having said all that, the positive numbers are becoming harder to ignore.
Julian: Plus, consumers are spending more.
Lacter: You know, Bill Maher was joking the other day about how all the shopping malls are jammed, and he's right. Taxable sales in California have increased for 12 straight quarters, and they're expected to get back to the pre-recession levels by the end of this year. Nationally, we saw that retail sales rose pretty sharply in September and the August numbers were revised higher.
Julian: Any idea why?
Lacter: Believe it or not, they’re actually citing the huge sales last month for the new iPhone, along with the recent run-up in the stock market - that's important because investors feel more comfortable about their financial situation when their stocks go up. What's confusing is that a lot of people are still out of work - California's job growth has actually outpaced the nation as a whole, but the state unemployment rate is still 10.6 percent (that's the third-highest in the nation) and for L.A. County it's even higher.
Julian: So, don’t you need significant job growth for the recovery to be sustained?
Lacter: That’s what the experts say. But household debt is coming way down (that’s home mortgages, credit card debt, most every kind of liability), and so it’s possible consumers - at least the ones with jobs - are becoming more comfortable with spending money. Should that happen, those reluctant business owners could become more willing to hire, which would increase job growth and result in still more spending. Understand there's no guarantee this is going to happen - and even if it does happen, there won't be any kind of eureka moment when CNBC suddenly announces that the economy has come storming back. More likely it's going to continue to be sluggish and inconsistent, which is maybe not the best outlook in the world, but not the worst either.
Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.