The Bureau of Labor Statistics has released dramatically revised historical data suggesting that California's recession is much less severe than previously thought. This interpretation is mistaken -- the focus should be on personal income, not employment.
A recovery is unlikely to take hold in California until the spring of 1994.
The recession in California, which has lasted for more than three years, widely is regarded as the worst in the state's postwar era.
Its depth usually is stated in terms of employment. As of May, California had lost an estimated 740,000 jobs, almost 6% of its employment base -- far and away the largest decline since the shakeout that accompanied the end of World War II.
However, on June 4, 1993, the Bureau of Labor Statistics released dramatically revised data that reduced California's overall job loss by 25%, calling into question the severity of the state's recession.
Notably, the revision stemmed from a controversial correction for what the BLS contends was chronic overcounting of employment in the 1980s.
Although overcounting was a nationwide phenomenon, the BLS attributed 40% of the excess to California, so the adjustment had a disproportionate effect on the state.
Based on the revised data, one might assume that California's recession has been much less severe than previously thought. This is a mistaken interpretation.
The decline in real California personal income since mid-1990 is the steepest since at least 1948. The decline is corroborated by record drops in state taxable sales, real estate values, construction volumes, and help-wanted advertising.
We we continuing weakness in key economic indicators in California: a broad-based decline in employment, flat or lower help-wanted advertising in all major markets, weak retailing, and falling home prices and construction volumes.
Recovery Will Mimic Nation
Those indicators, coupled with severe pressure on the defense sector and expected job losses in local government, virtually insure that the state will remain in recession well into next year.
When a recovery does take hold in California, it likely will be slow to develop, uneven, and disappointing -- much the same as for the nation over the past two years. However, the real question concerns the longer term.
The fundamental issue is whether the state's economy will grow according to previous post-recession patterns.
There are two polar views: (1) That the recession reflects an unfortunate confluence of special factors that will not be repeated, and (2) that the recession marks the end of an era in California and growth will be disappointing long after the recovery begins.
The employment revisions seem to support the former view, because they make California's recession look considerably less severe than before. But even if one accepts the employment revisions at face value, the overarching measure of economic performance is personal income, not employment.
Two Basic Questions
There are two issues surrounding the revisions to California employment: whether they make sense, and, if they do, whether they necessarily overturn the conventional wisdom that the severity of this recession vastly exceeds all others in the state's postwar era.
As for whether the revisions make sense, the most important question is why California was assigned such a disproportionate share of the national overcount. The BLS has not published anything on the state-level revisions yet.
However, because total wage and salary disbursements are fixed, one check on the employment data is to see what they imply for average salaries. The revisions result in an unprecedented 1% decline in average nominal salaries in the winter of 1991, which seems implausible.