Two pillars of the California economy, technology and real estate, look volatile at best.
Think about the recent layoff headlines impacting California businesses.
“Twitter cuts 3,700 workers” Billionaire Elon Musk has acquired the San Francisco-based social media giant and cut staff around the world after finding it was in bad financial shape. Bloomberg reported that he said he could.
“Metakat 11,000 workers” Fellow billionaire and CEO Mark Zuckerberg, owner of Menlo Park-based Facebook, has announced more job cuts (not just in California). He admitted that he had misread the demand for advertising and had failed to make a big bet on his new “Metaverse” community.
Meanwhile, news swirls about other technology withdrawals and job freezes. The Cupertino tech titan had a disappointing prediction from Apple. And Mountain View-based Alphabet, which owns Google and YouTube, has cut its hiring plans in half.
After a terrible summer for California housing, the tech industry has crashed.
Rising mortgage rates have made home-hunting intimidating. Sales have collapsed to the lows last seen during the Great Recession. Prices fell.
No deals, no loans.Therefore, based in Orange County LoanDepot says it’s working less, that too. Across the country, the mortgage lender, which started the year with 11,300 employees, plans to cut that number to 6,500 in September, from 8,500.
How much will technology and housing issues affect California’s economy?
It’s not easy to quantify. According to industry impact studies, technology and housing account for about one-third of all business activity.
Tech jobs account for 18% of California’s economy, according to the report. Annual Cyberstate SurveyA wide range of housing, from sales to furniture to construction, accounts for 16% of California’s business output. National Association of Realtors Estimates.
I asked my trusty spreadsheet to look at the history and calculated it myself california unemployment rate, NASDAQ Composite Index (a tech stock market barometer and an indicator of the health of the industry), and Federal Housing Finance Agency California Home Price IndexWe looked at quarterly changes over a period of 12 months from 1976.
Over the past 46 years, when California’s unemployment rate has been rising, the Nasdaq index has averaged 5% annual growth.
It’s a bad return, isn’t it? The Nasdaq has risen an average of 17% over the past 12 months when the state’s unemployment rate has fallen. As such, it is difficult to separate technology success from the California job market.
Also note that the Nasdaq index fell at an annualized rate of 19% this summer. This is the worst drop since the Great Recession. Twitter shares had halved this year before Musk bought the company. The meta stock is worth a quarter of its 2021 high.
Remember, technology is a volatile business.
Consider information workers in California like Twitter and Facebook.
After the dot-com stock craze collapsed in 2000, the information niche lost 20% of its workforce. 10% cut in the Great Recession. Since then, information-related jobs have grown by nearly 50%.
Technology bosses will no doubt pay attention to foreseeable future costs with profit-seeking investors in mind.
A similar pattern can be seen in the real estate world.
If California’s unemployment rate is rising, home prices have increased by an average of 1% since 1976. Conversely, if unemployment is falling, house prices will rise by 9% a year.
It makes sense. You need a good job to afford a home in California. Unless interest rates hit his 20-year high and buying a home barely fits into the family’s budget.
So it’s no surprise that LoanDepot’s stock has fallen 95% from its 2021 high.
California’s tech and housing headaches come as the state economy cools after a violent rebound from 2020’s Covid-19 lockdowns.
the state is Research by Fitch Ratingsreviewed the national economy for the year ending in June.
California’s personal income increased 1.5%, making it the sixth-lowest state. Gross domestic product across the state he increased 0.3%, the 11th slowest. California’s tax revenue increased by 11.9%, placing him 30th in the state. And he ranked 24th in rebounds as of September, replacing 99% of the jobs lost during lockdown in California.
When I averaged these state rankings in my spreadsheet, California’s economy ranked 39th.
Remember, technology is a critical cog in nearly every economy. Because the sector employs highly paid employees. According to Cyber states, a typical California tech worker makes $117,000 a year.
These hefty salaries drive up spending statewide, not to mention housing prices. And when the Nasdaq index surges, the California government benefits from a hefty collection of capital gains taxes.
You see, California’s economy is famous for peaks and valleys.
The unemployment rate is now near an all-time low of 4%, pushing up wages but also pushing up inflation. Statewide information jobs hit a record high in August. And California home prices broke price records, rising 22% annually this spring.
And if you look at the warning signals from the tech and housing industries, it’s surprising that the two industries are rarely in trouble at the same time.
Since 1976, there have been only three periods of such double dips, at least as measured by the Nasdaq and FHFA scales.
In 1982, there were nine months in which the Fed hiked interest rates to keep inflation in check. During that period, California’s unemployment rate rose from 8% to 11%.
There were about two years before and after the Great Recession. housing collapsed. The world financial markets were in turmoil. The statewide unemployment rate he doubled from 2008 to 12% in 2010.
And an outlier: the winter of 1994-95.
Over the past six months, central banks have once again played an important role. Federal Reserve Rate Hike Hits Stocks, Bonds, Real Estate
Oddly enough, that didn’t deter California’s economic recovery from the severe recession of the early 1990s. The unemployment rate declined slightly during this period.
Jonathan Lansner is a business columnist for the Southern California News Group.he can be reached at [email protected]