Our Awful Situation

What’s next for the economy? Look at California

Posted by Charlie Kilo on May 20th, 2008

Tough times in world’s seventh largest ecomomy: consumer spending down, unemployment up, municipalities going bust:

As it did when the housing bubble began to burst, California is leading the way in the next leg: a consumer bust.

Squeezed by rising unemployment, inflation in food and energy costs and plunging house prices, Californians are cutting back on spending. Besides causing woes for state and local government, this is giving California’s economy another knock and makes further job losses, home repossessions and banking problems more likely.

The figures are pretty bad. The median home price has fallen by 29% in the year to March, according to the California Association of Realtors, and repossessions are surging. Unemployment has risen by 24%, to 6.2%, in the same period.

But most importantly, in the 10 months to the end of April sales tax receipts in California are actually down in absolute terms. Gasoline tax receipts are essentially flat. When you factor in that there would have been considerable inflation during the period, and that some essentials like gasoline will have risen sharply in cost, the picture is clear: Californians are tightening their belts.

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Our Awful Situation

What’s next for the economy? Look at California

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