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The signs are all there of a recession hitting California pretty hard. The state budget surpluses of the past two years could disappear and turn into deficits. Unemployment, at 4.1% in August, could go much higher.
Every recession is different and affects every industry in different ways. This is the “lead storm” that is now hitting the Golden State.
European recession
“The energy crisis that has hit Europe is going to slow their rate of growth, and therefore their imports in general,” Raymond Sfeir, director of the A. Gary Anderson Center for Economic Research at Chapman University, told me.
“The United States will sell more oil and natural gas to Europe, but these will come from states other than California. Note that our economy recovered faster than Europe’s after the 2020 recession. So we started importing more and more. The high value of the dollar is certainly hurting our exports,” he said.
Too bad California killed off a good chunk of its oil industry, otherwise we’d both have lower gas prices here and profit from exporting oil and gas to Europe.
He provided data on California exports to Europe. This is for 12 countries including the largest economies; 2020-21 were the years of the COVID-19 pandemic:
- 2019 $33 billion;
- 2020 $29.131 billion;
- 2021 $29.829 billion.
“I can’t really say how badly California exports to Europe will be hit,” Sfeir said. “I guess it will be big but not huge. Many products such as machinery, electrical equipment and chemicals are required for their production. So these will hold. They are not as vulnerable as clothing and consumer electronics.
“The main products that California exports to Europe (2021 data) are computer and electronic products, chemicals, transport equipment (although much less than in previous years), agricultural products and machinery.”
A truly grim assessment came from Forbes. “Europe is heading towards a ‘deep recession’, deindustrialisation,” wrote senior contributor Kenneth Rapoza on September 11. Age. Forests are being cut down for firewood as Russia retaliates with its own wartime sanctions on Ukraine by cutting off the trickle of natural gas it was still delivering to Europe.
Technological crunch
California’s $100 billion state budget surplus depends on a booming high-tech industry. It seems to be on the back burner.
Market downturn triggers longest U.S. tech IPO [initial public offering] drought for more than 20 years,” the Financial Times reported on Sept. 19. “The stock market downturn since the start of the year has caused the longest drought in U.S. tech listings this century…Wednesday will mark 238 days without an IPO on the stock market worth more than $50 million, surpassing previous records set in the aftermath of the 2008 financial crisis and the dotcom crash of the early 2000s…
“The tech-dominated NASDAQ has fallen nearly 28% this year, compared to a drop of just over 19% in the S&P 500, while the Renaissance IPO Index, which tracks US companies listed on the over the past two years, is down more than 45 percent.”
California’s economic gem, Silicon Valley, depends on these IPOs.
Interest rate
On Wednesday, the Federal Reserve Board is expected to raise interest rates by 75 basis points, to 4%. This follows last week’s report, inflation remains stubbornly high at 8.3%.
The Dow Jones Industrial Average rose 0.6% on Monday. But that followed the heavy loss of 4% the previous week.
Analyst firm Black Knight tracks home sales valuations and released a National Markets report on Sept. 7: “Annual home price growth moved from deceleration to decline in July, median price homes fell 0.77% from June, the biggest one-month drop since January 2011.
He also reported on “workable equity,” which Financial Samurai defines as “the amount of home equity available to homeowners to withdraw through cash refinancing or a second mortgage.”
Black Knight wrote: “Some of the country’s most equity-rich markets have seen significant pullbacks, especially among major West Coast metropolises. From April to July, San Jose lost 20% of its workable equity. Seattle followed, losing 18% of workable equity in the same three-month period. Similarly, San Diego (-14%), San Francisco (-14%) and Los Angeles (-10%) have all seen double-digit declines since April.
When you’re my age, 67, you’ve seen a lot of recessions. They are never pretty. And governments never seem to learn to avoid root causes, such as war, overspending and inflation.
At least I didn’t go through the Great Depression of the 1930s, which my parents always remembered. Maybe this time it will be just as bad as the relatively mild dot-com bust of 2000-01. Maybe not.
The opinions expressed in this article are the opinions of the author and do not necessarily reflect the opinions of The Epoch Times.
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John Seiler is a veteran California opinion writer. He has written editorials for The Orange County Register for nearly 30 years. He is a United States Army veteran and former press secretary to California State Senator John Moorlach. He blogs at JohnSeiler.Substack.com
