The employment picture in California turned out to be somewhat more hearty than initially anticipated in the latter half of 2006, but the better-than-expected employment growth likely only postponed an economic slowdown. It is not expected to stop it, according to the UCLA Anderson Economic Forecast released today. “The California Report” noted that the professional and technical services sector added 47,000 new jobs instead of the initially projected 23,000 jobs in California in 2006, and the construction sector didn’t lose nearly as many jobs as was earlier anticipated. But the professional and technical services sector growth was mostly centered in the Silicon Valley and the more recent meltdown in the subprime mortgage market resulted in a more long-lasting trend to greater job losses in the financial sector across California than researchers initially expected. “Unfortunately, these positive revisions simply represent a postponement of the consequences of the real estate slowdown,” the author of the report, Economist Ryan Ratcliff wrote. “We still expect to see the pattern of deepening real estate losses combined with a slowdown in the rest of the economy now it’s just the first half of 2007 instead of the second half of 2006.” The troubles in the subprime mortgage sector are expected to particularly impact Southern California. But so far, the default and foreclosure activity is centered in areas where there has been a large amount of new home construction, Ventura and Riverside counties along with Bakersfield, the East Bay and Sacramento. While these areas have so far had the highest levels of defaults, a second trend involving the tightening of mortgage credit standards, is likely to affect a broader swath of the real estate sector in California, the report noted. “According to the January 2007 survey, 16 percent of respondents were tightening credit standards on mortgage loans in the last three months of 2006,” Ratcliff wrote in the report, referring to a quarterly survey done by the Fed. Ratcliff noted that, while the percentage sounds low, it reflects a “big swing” from the standards that had prevailed and it was the highest level of response to the question since the early 1990s, when the real estate market fell into deep recession. The report notes that it is too early to know whether the increase in delinquencies will result in a significant increase in foreclosures. But the authors do not anticipate that a recession of the level of the 1990s will occur this time because there are no indications that severe job losses will be felt outside the real estate sector.
