California’s economy to grow schizophrenically – at best

LOS ANGELES
December 11, 2012 9:01pm

The Central Valley will remained mired in economic depression for the foreseeable future, while parts of California prosper beyond the national average, according to a report Wednesday from the California Lutheran University Center for Economic Research and Forecasting.

“Inland California (the Great Central Valley, the deserts, and rural Northern California) is suffering what amounts to a depression. Unemployment rates are extraordinary. Poverty is persistent. Economic growth is rare and localized. Expect little economic growth here,” says the report, written by Bill Watkins, director of the Center.

California's schizophrenic economy is difficult to forecast, he says, breaking the state into four distinct centers, each of which is on a different path.

The Bay Area, and to a lesser extent San Diego, is booming, Mr. Watkins writes. “California's tech sector is incredibly vigorous, and it's driving growth rates that exceed the United States growth rate. California's tech sector will likely prosper throughout the two-year forecast horizon. Those communities that house it will enjoy an excellent economy,” he says.

The Greater Los Angeles area is an economy still in transition from an Industrial economy to a post-industrial economy, he says. The region has already seen the demise of its tire, steel, and auto manufacturing, along with most of its ship building and aircraft manufacturing.

“The transition has been difficult, but Los Angeles has avoided the devastation we see throughout the rust belt. Its diversification, climate, ports, and location on the prosperous Pacific Rim have been huge advantages,” writes Mr. Watson.

Los Angeles' transition will continue. “We think this mostly means that its economy will plod along, slowly growing most quarters, but the occasional quarterly decline would not be surprising,” he says.

Then there is California's “Geriatric Coast,” as Mr. Watkins puts it. “It's continuous from Los Angeles to the Silicon Valley. It skips the Bay and begins again at the north end of the Golden Gate Bridge, extending through Mendocino County.”

This area is wealthy, but not prosperous, he says. It is where wealthy, and usually older, people come to enjoy life. It is a consumption economy with little investment or growth. The jobs, outside of its still-impressive agricultural sector, are mostly related to tourism, retail, restaurants, government, and businesses that support a wealthy and aging leisure class, Mr. Watkins says.

“There is one growth industry here, medical care. It will continue to be an increasingly important component of the Geriatric Coasts economy,” he says.

Nationally, the report notes that Americans’ wealth is down about 20 percent from its pre-recession high. The labor force participation rate is lower than it has been in 20 years.

“Given those data, you have to wonder why Americans are increasing their debt load,” Mr. Watkins writes.

Large student debt loads combined with weak job prospects will result in slower household formation, delayed home purchases, delayed childbirth, and fewer children, he predicts. “All will slow economic growth and increase the probability that this generation will be the one that pays for it all,” he says.

“Unless something really big and unforecastable happens, large portions of California's economy won't grow much at all,” Mr. Watkins predicts.

“In the long run, without significant policy changes California's tech sector and venture capital infrastructure will go the way of the state's industrial base. It will simply disappear,” he opines. “Californians will eventually notice that the center of innovation has moved east or overseas.”