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September 4, 1992
Happy Labor Day, to those of you who have jobs.
As it turns out, there were 83,000 fewer of you in August than in July, against expectations of a 160,000job increase. This news has produced new mortgage rate lows for 1992, and the odds favor further declines.
The big question this summer has been whether the economy is stumbling along at a steady, if slow, growth rate, or decelerating, perhaps back into recession. Today's NonFarm Payroll report, and the rest of the data below provide the answer: the economy is slipping, and the Fed will have to react, perhaps later today.
The August Purchasing Manager's Index fell .5% to 53.7, just barely in positive growth territory. July reports: New Home Sales down 2.6%, Construction Spending down .6%, Factory Orders down 1.1%, and Leading Indicators up a pathetic .1%.
Ever since the 40's, California has been a cultural and economic leading indicator for the rest of the country. Fads, fashions, skills, business practices, wines trends of all kinds start there and spread east.
For decades, real estate people have called California brokers to catch up on tax deferred exchanges, delayed escrows, counselling sales methods, development ideas, buyer brokerage, and lending. A common California response: "Aw, by the time you guys figure this out, the IRS will have changed the rules."
This week, California turned up the heat in its' own incubator, and it may presage warming for the rest of us that will be hotter than anything CO2 can do.
California has had the same budget problem facing the whole country: spending far outstripping revenue while even more money seems needed for serious social problems. Raise taxes or cut spending? Let urban ghettos, immigrants, students, the poor, and the whole infrastructure of the state fend for itself on less spending, or raise taxes?
In an act of perhaps suicidal courage, and yet unknown wisdom, Governor Pete Wilson said "Enough." Spending is out of control, and revenues will have to be sufficient.
At the beginning of Reaganomics, wags asked "Could we try this on a smaller country, first?" Here we go: California is going to try the spending side solution for the rest of us.
Note the stark contrast between Governor Wilson and the gridlock performance of Mr. Bush and the hazy nonproposals of Mr. Clinton.
Wilson broke the California gridlock by vetoing every budget sent to him until one came that he was willing to sign. Live on IOU's, shut down if necessary, but decide something: no more blamesomebodyelse and wait.
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