Wednesday 3 October 2012

California's "Recovery" Takes A Dramatic Turn For The Worse

I have to share this article from Wolf Richter of the Testosterone Pit.

When I read it, I literally "wow"ed 3 times at the dismal numbers in the following paragraphs:

The trend has been going on for several years, as investments by VCs have outpaced their ability to raise funds. At some point, these funds will be drawn down, and investments in startups will wither. We’ve been through this before. And it might be at the cusp of happening again. It will take the sheen off the Bay Area. Meanwhile, manufacturing in Southern California, where this exotic activity is still practiced, is leading the way.

California has its own manufacturing PMI, the Inland Empire Report on Business, sponsored by San Bernardino and Riverside Counties in Southern California, commonly called the Inland Manufacturing Index. After the recent high of 60.8 in March—above 50 indicating growth—it zigzagged down to 52 in August, and then in September, it crashed to 43.4—the lowest level since September 2009.

All five key components were weak. And three fell off a cliff: Production tumbled from 55 in August to 37.5 in September; New Orders—a harbinger of pain to come—fell from 52 to 37, and Exports fell from 51.1 to 35.7. “Disturbing,” the report called it.

So, with orders, production, and exports going south, the employment index sank to 44.6, indicating declining employment in manufacturing for the first time since December 2011. But thanks to the serial and now infinite QE, the Bernanke effect has kicked in: one component actually rose to 64.1, namely commodity prices. These higher input costs are adding to the pressures that businesses face.


Disturbing doesn't quite cut it. Catastrophic would be more accurate, I think. California is in rougher shape than ever - as not only are levels at lows not seen since 2009 during the financial crisis, but are probably going to continue to fall as domestic and global demand declines.

Not to mention the fact that municipalities across the (not so) Golden (anymore) State are going bankrupt faster than you can shake a stick at. The number is up to 4 already, and that will almost definitely increase as the true economy in the US continues to decline.

Read the full article from Wolf Richter here.

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