CALIFORNIA BUSINESS-Reports of the death of California business appear to be not only premature but entirely wrong. And it’s certainly not happening at the hands of Texas, as has been commonly stated by business interests that hold up the Lone Star State as a shiny beacon of low taxes and few industry regulations.
To be sure, Texas has done well in the past decade compared with much of the rest of the U.S. as the country struggled with the Great Recession and its aftermath. While California certainly suffered in that period with the near collapse of the U.S. banking industry and its resulting loss of homeownership, Texas and its substantial oil industry reaped the rewards of rising fuel prices.
That trend has clearly reversed as the oil industry struggles as gas prices plummet and housing in California has steadily grown in a much more sustainable way. It also helps the Golden State that its economy is the most diverse in the U.S., according to a study this month by the Milken Institute and is less likely to be hurt by a demise in any one industry.
According to the Milken report, “2014 Best-Performing Cities: Where America’s Jobs Are Created and Sustained,” San Francisco (including San Mateo and Redwood City) was No. 1:
● San Francisco achieved the top rank for the first time in the 15-year history of the index. Propelling the gains: the city’s No. 1 finish in wage growth over both the past five-year and one-year periods.
“Young, technology-skilled workers are flocking to San Francisco, driving up wages and driving down unemployment in these sectors below 2 percent,” says Ross DeVol, Milken Institute chief research officer and one of the report’s authors.
The San Jose metro area (including Sunnyvale and Santa Clara) remained in 4th place, the same spot as the year before. The San Diego metro area finished in 22nd place, with San Luis Obispo (buoyed by a growing wine industry) finishing 24th.
But here’s the part we like the best. California, one of the hardest-hit states due to the housing bust, is roaring back now that the homebuilding market has stabilized. Cities such as Merced, which ranked 159th in the 2013 Milken report, is now 71st, passing 88 cities in the U.S. Sacramento jumped 76 spots from 165th to 88th. The Inland Empire (Riverside, San Bernardino, Ontario) jumped 65 spots to 106. Oakland jumped 57 spots to 35th.
And Los Angeles (including Glendale and Long Beach) jumped 55 spots to finish 42nd in the 2014 ranking. Other California cities that experienced big jumps include Santa Cruz, which passed 49 cities to finish 54th and Fresno, which passed 45 cities to finish 113th.
To be sure, Texas remains strong, at least for now, with five of the top 10 rankings for large metropolitan areas. But 2015 promises a certain degree of hurt.
Halliburton Chairman and CEO Dave Lesar warned employees last month that 2015 is expected to be a “tough” year, which could include additional job cuts, according to the Houston Business Journal.
Those jobs, Lesar said, are related to market conditions and not other factors such as company acquisitions, which it is also undergoing.
Also last month, the Greater Houston Partnership forecast 2015 will bring a significant drop in oilfield services jobs, a decrease of 7,900, and a minor drop in oil and gas exploration jobs, down 1,300.
And that’s just in Houston. As the Dallas Morning News reported this week, all of Texas is hurting due to the fall of crude oil prices:
● “Signs of decline are already emerging. The numbers of drilling permit applications filed with the Texas Railroad Commission is down 45 percent since last March. U.S. rig counts are falling at the fastest rate in more than two decades.”
The Dallas paper also reported this week that Texas Fed economists “expect job growth in the state to slow to between 2 percent and 2.5 percent this year from 3.6 percent in 2014. That translates to about 140,000 fewer new jobs than created last year.”
But enough about Texas. California is clearly standing tall on its own, not because others are doing less well.
Bloomberg News this week reported that California will soon pass Brazil as the seventh-largest economy in the world, “bolstered by rising employment, home values and personal and corporate income, a year after the most-populous state surpassed Russia and Italy.”
California’s diverse economy stands in stark contrast to oil-dependent Texas (yeah, we’re having trouble letting this one go after Texas Gov. Rick Perry made such a show in his attempt to poach California businesses a couple of years ago).
As Brown told Bloomberg in an interview in his Oakland office this week:
● “It’s the diversity of the California business environment, from movies to the Internet to agriculture — the incredible array of businesses that make up the state. Certainly getting our finances in line as a state is also helpful: the new investments in our schools; solid universities; investments in water and energy. All this gives security and keeps California very much in the forefront of investment, change, cultural adaptation and leadership.”
It’s that economic diversity that seems to be the key, as clearly stated in a New Yorker magazine article this month, “How California bested Texas.” The article cites a 2013 Brookings Institution study that looked at the diversity of the economy in all 50 states.
● “Texas has a significant presence in five of the fifty advanced industries. That makes it the twelfth most diverse state—less diverse than California, which is involved in fourteen advanced industries, but more so than New York, the third-most-populous state. But three of the five advanced industries present in Texas are related to the energy sector—for instance, manufacturing of petroleum and coal products—which means they could be vulnerable to the oil crash, too.”
We certainly don’t wish harm to the Texas economy, but it does appear to be time to stop this nonsense about Texas being better than California for business. The numbers – and the pundits — say otherwise.
(Gary Chazen is founder and curator at CalPossible and longtime Northern California journalist. This column was posted earlier at CalPossible.com and foxandhoundsdaily.com).
-cw
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CityWatch
Vol 13 Issue 7
Pub: Jan 23, 2015
