But Texans Say, “We’re Full.” And Californians, Buckling Under
Housing Costs & Congestion, Tell Wannabe Leavers, “Just Do It”
This is now everywhere in the Media. In San Francisco, it was on Radio
this morning, a whole discussion on KQED’s Forum
about California and Texas, with a good dose of California-bashing, and some
Texas-bashing too. The fear is that business conditions and costs of living
are driving businesses and people out of California. The panic here is over
this question: What can California do to stem the outflow of businesses and
people to Texas? At least that’s the official panic.
And there is suddenly some reason for this panic. According the latest
data from the California Employment
Development Department, the labor force (people who are either working or
are actively looking for work) and the number of employed people declined two
months in a row, April and May, to form a fairly steep dip, even on a
seasonally adjusted bases as shown in the chart:
The labor force peaked in February at 19.582 million (seasonally adjusted)
and has since dropped by 103,600 people to 19.479 million, below where it had
been in April 2018!
The number of employed people dropped by 104,900 over the same period to
18.65 million, to the level of September 2018.
Given that the labor force and the number of working people shrank at
about the same rate, the unemployment rate remained flat in May with February
at 4.2%. So this is not a case of companies massively laying off people, but
a case of people leaving the state, both employed and unemployed people.
California is nearly always ranked as one of the worst places to do
business, and Texas as one of the best. For example, in its 2019 rankings, Chief
Executive put Texas in first place and California in dead-last 50th
place.
While these types of surveys are routinely brushed off as whining by
spoiled-rotten CEOs, the dip in the labor force and employment are now
causing some soul-searching here.
On Friday, it was Governor Gavin Newsom who came out swinging. “Every
year, the executive magazines come out and say, ‘California is the worst
place to do business, No. 50 in the nation,” he told the San Francisco Chronicle. “They say the best places are
Tennessee and Texas … but if it’s all about (gross domestic product), we
outperform everyone.” The state “is still the envy of the world,” he said.
“Some of the CEOs have never done better in their lifetime,” he said.
“They made all their money here, and then move to Arizona before their IPO.”
Also on Friday, Newsom addressed the crowd of executives at the 2019
Pacific Summit in San Francisco: “We’re not going to be the cheapest place to
do business, but you knew that 50 years ago,” he said. He mentioned some of
the reforms. “We’re making progress, and I hope you’ll start focusing on that
rather than the 13.3% damn tax rate.”
And yet California’s population has ballooned to nearly 40 million people,
and housing is insufferably expensive. The term “Housing Crisis” is in common
use in many cities, and there is a continuous flow of stories in the media
about people who work at any of the tech companies in Silicon Valley or San
Francisco or Southern California, often as contractors, who cannot afford
housing, or don’t want to blow all their income on housing, and so they’re
living in cars, vans, and RVs parked in endless rows on some streets.
Other people, who live in slightly less unaffordable areas face horrible
commutes. In the Bay Area, these commutes also involve chokepoints in the
form of bridges. These people leave their house before 5 a.m. to beat the
rush, and since everyone is doing it, that’s when the rush starts.
So, for many Californians buckling under this stress, there is a fervent
wish that these people that keep talking about leaving the state should just
do it, instead of wasting everyone’s time talking about it. The people that
are buckling under housings costs, congestion, and commutes wouldn’t mind if
a few million Californians finally packed up and moved to Texas.
About 21% of Americans live either in California (40 million) or in Texas
(29 million). No other state comes close. Florida is third with a population
of 21 million people (chart via Google Public Data Explorer):
Alas, I just heard from my concerned friends in Texas. And they told me to
spread the word here in California that Texas is full, and that the new go-to
state is now North Dakota. Pooh-poohing California has become an election
strategy by certain Republican candidates in Texas with a battle cry, “Don’t
California My Texas,” which is now available on T-shirts.
In San Francisco and Silicon Valley, according to EDD’s not seasonally
adjusted data, the jury is still out fretting. In the counties of San
Francisco, San Mateo (northern part of Silicon Valley), and Santa Clara
(southern part of Silicon Valley), the labor force dropped from the peak in
February by 31,100 to 2.09 million, with a very sharp drop in April, followed
by an uptick in May, taking it back to August 2018 levels. The number of
employed people fell by 19,000 to 2.05 million, also back to August 2018
levels.
And since the labor force plunged more quickly, with people apparently
heading for Texas or maybe North Dakota, the unemployment rate dropped to
1.8% in San Francisco and San Mateo, and to 2.1% in Santa Clara Country, all
of them the lowest rates in the data as far as I can see. So this is not a
case of companies laying off people – no, they’re still struggling to hire –
but a case of people vanishing.
In Los Angeles County – with a population of 10.1 million, over a quarter
of California lives there – the plunge started late last year: From the peak
in November through May, the county lost 103,000 people in its labor force
and 68,700 employed people.
This shrinkage took the labor force to 5.072 million, a level first seen
in June 2017 – nearly two years ago! And employment dropped to 4.873 million,
a level first seen in September 2017. So here, the jury is no longer out:
Because in Los Angeles too the labor force is shrinking faster than the
number of employed people, the unemployment rate dropped to 3.9%.
For now, there are still hopes that the dreadfully shrinking labor force
is just a statistical quirk or a seasonal factor. This could still be the
case in the Bay Area. But in Los Angeles County, the data is strong and
persistent enough to indicate that there is some kind of trend at work.
And Los Angeles might be the leading edge in this trend, with the Bay Area
and other population centers following behind. And that’s what California’s
officials and the entire housing industry and other industries are fretting
about.
But this would be just what Californians who are buckling under housing
costs and congestion are praying for: That this net-outflux might pick up
some speed and make some room and take some pressure off the housing market
and allow prices and rents to correct.
The Fed has already accomplished more with its verbiage this year than
it had last time when it cut rates all the way to zero and did trillions of
dollars of QE. My podcast… THE WOLF
STREET REPORT: Stealth Stimulus Has Arrived
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