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Watkins: Slow growth ahead

By   /   Tuesday, September 27th, 2011  /   1 Comment

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California faces at least two quarters of very slow growth next year, with continued job losses and a decline in home prices that likely will extend to 2013.

That was the grim news from California Lutheran University economist Bill Watkins, who spoke to about 300 people at a Sept. 27 forum hosted by Montecito Bank & Trust.

“We are looking at growth close to zero, small job losses and unemployment around 10 percent,” Watkins said. He said he expects Santa Barbara and coastal communities to outperform hard-hit areas such as the Inland Empire. Santa Barbara County, he said, could actually produce some job growth thanks to a rebound in tourism and manufacturing.

Watkins said the decline in home prices is practically inevitable given that home ownership rates are still above the post-World War II trend line. Until consumers complete a deleveraging process that includes mortgages, expected to extend for 24 months or more, home prices can expected to fall.

Recovery might come quicker in Santa Barbara, he added, because it has a global market for single-family homes.

Picking up on the theme of a recent editorial in the Business Times, Watkins said the biggest challenge for California is providing an attractive place for families with young children.

High housing prices on the coasts and high unemployment in the interior mean that young families are moving to states such as Texas where jobs are more abundant and housing is cheaper.

California doesn’t have to totally level the playing field to keep its talent pool intact, but it does have to be “close enough so businesses can compete” in terms of regulation, tax policy and governmental efficiency, he said.

He said that the recession and new technology are having a bigger-than-expected impact on commercial real estate. Retail establishments are under heavy assault from Internet sellers such as Amazon, and many corporations are shedding office workers fast by encouraging employees to telecommute. He said strip malls are particularly vulnerable to online competition and that municipalities will need to be able to speed repurposing of these centers that could easily become blight zones.

In response to a question, he said it is a fallacy to believe that reductions in government workers can send an economy into a negative loop. Overstaffing in government is a distribution problem and not an economic growth problem, he said.

As governments reduce the tax burdens they place on citizens, taxpayers have more to spend in the private sector, he added.

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1 Comment

  1. leonafitz says:

    When it comes to unemployment it’s been a tale of two recessions, with level of education playing an unprecedented role in whether you’ve been pink slipped or not. Getting a degree from “High Speed Universities” is the only solution

    Like or Dislike: Thumb up 0 Thumb down 0

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