Chapman: No Recession, but Slow Go for California Economy in 2012
California consumers will pry open their wallets a little more next year. Exports will chug along, and there will be a very slight improvement in the state employment picture.
That’s the outlook for 2012, according to the annual economic forecast prepared by the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif.
“In California, the economic recovery creeps along,” said Esmael Adibi, director of the center.
On the national front, the economy will be ticking along, with no recession predicted for 2012. GDP is forecast to grow 2.3 percent in 2012, compared with an estimated 1.8 percent in 2011.
One of the bright spots for next year is the state’s export market. California’s principal trading partners are Mexico, Canada and China, which have had positive economic growth over the past few years. Japan, the state’s fourth-largest trading partner, has launched a massive rebuilding effort after a colossal 9.0 earthquake and resulting tsunami battered the island country in March. Japan is now on the mend with automobile parts and car production revving up and construction projects planned to replace lost buildings and homes.
Europe, however, is a different story. “Although the Eurozone economy may experience contraction, only Germany and the Netherlands are among California’s top-ten export destinations,” the report said.
On the state real estate front, there is still a high inventory of unsold homes and high commercial real estate vacancy rates. The good news is that construction expenditures dropped so much between 2007 and 2010 that it can only get better. Construction spending is forecast to grow by 5.6 percent in 2012.
With exports and construction growing slightly, the job picture in California looks a tad rosier. For the first 10 months of this year, the state added 193,000 payroll jobs. The only counties growing faster than the California average were Santa Clara, which includes San Jose, and San Diego.
The state is expected to add 237,000 payroll jobs in 2012, a 1.7 percent uptick over 2011. “The recovery will be broad-based, with both services and goods-producing sectors gaining payroll jobs in 2012,” the report noted.
Consumers are also expected to do their part for the economy even though they were often shy about spending their dollars during the tough times of 2008 and 2009. Taxable sales in California are predicted to rise 5.4 percent in 2011.
“One factor that could impact the apparel and retail industries is the extension of the payroll taxes,” Adibi said, referring to the congressional debate on whether to keep the payroll tax at 4.2 percent instead of 6.2 percent. The reduced tax, which saves the average taxpayer $1,000 a year, is scheduled to expire at the end of the year if no congressional action is taken. “If they extend it, it leaves more money in people’s pocket. If they don’t extend it, that would turn out to be a drag.”
Still putting a damper on the recovery is the California housing market. Not only is there a large number of unsold homes, there are large amounts of homes in the foreclosure process. Housing prices in California will decline by 2.5 percent next year. But that may not help buyers. Lenders are still being tough about housing loans.—Deborah Belgum
