A newly released ranking of states mostly likely to survive the next recession finds California on shaky ground.
The report from FitSmallBusiness.com ranks the Golden State at the bottom of the list. The analysis draws upon data from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Deposit Insurance Corporation, among others.
A broad evaluation
Each state was evaluated on a variety of factors including existing debt level, unemployment rate, housing prices, average credit card debt and statewide deficit versus surplus.
The Golden State’s ranking shows that Californians have nearly 2.35 times more debt than income. That was calculated by taking the average per-resident debt of $65,740 and dividing it by the state’s median income of $28,000.
Other states — including Nebraska, Kansas, Hawaii and West Virginia — have far lower debt levels.
California’s unemployment rate of 4.7 percent (it has since risen to 4.8 percent since the rankings were done) isn’t bad, although 34 other states have lower jobless rates. North Dakota, which topped the FitSmallBusiness list as the state most likely survive the next recession, is tied with Colorado for the lowest unemployment rate of 2.3 percent.
On the flip-side, Alaska’s unemployment rate is 6.8 percent and New Mexico’s is 6.4 percent.
Housing is an issue
The rankings also note that California has some of the highest home prices in the nation.
Lars Perner, an assistant professor of clinical marketing at the USC Marshall School of Business, said California’s housing market has always been volatile.
“Our Achilles heel here — the thing that always tends to have a domino effect — is real estate,” he said. “In good times prices go up to exorbitant levels, and when a crash occurs they go so low it’s hard for people to refinance and they end up owing more than their homes are worth.”
Recent figures from price tracker CoreLogic show that Los Angeles County’s median price for a single-family home in July was $610,000, up 4.1 percent from a year earlier. Orange County’s median price was considerably higher at $750,000, which was up 3.4 percent from July 2016.
California also ranks poorly in the category of state income tax rates. California’s rate is 13.3 percent, much higher than North Dakota, where the state income tax rate is just 3.2 percent. Oregon, which landed 49th on the survivability list, had the second highest rate of 9.9 percent. Other states with high rates include New Jersey (9.97 percent), Minnesota (9.85 percent) and Iowa (8.98 percent).
Higher credit card debt
The report’s data from TransUnion finds that Californians have an average credit card debt of $5,769, compared with $4,932 in North Dakota, $4,833 in Nebraska and $4,851 in South Dakota.
Economist Robert Kleinhenz, executive director of economic research for Beacon Economics in Los Angeles, added a caveat to the rankings. He notes, for example, that energy states like North Dakota and Oklahoma landed high on the list around the time of the last recession but have since suffered as energy prices have tumbled.
“To do this right, you really need to look at how each state has fared through a number of recessions,” Kleinhenz said. “But on that score, California still does not do as well as it has in the past.”
The rankings also show that the value of California’s gross domestic product — which includes all goods and services — has fallen 4 percent since the last recession that began in late 2007 and ended in June 2009.
Other states posted bigger GDP declines during that period, including Michigan (down 8.4 percent) and Indiana (down 6.3 percent) but a number of state saw their GDP grow. Those include Alaska (up 8.7 percent) and Connecticut (up 4.2 percent).
Another recession?
Could the Golden State be headed for another recession? Not anytime soon, according to Kleinhenz.
“We look for warning signs that may be precursors to a recession,” he said. “That could include a spike in energy prices. Well, that’s off the table now. And we’re not concerned about inflation right now either. We also look to the Fed raising interest rates. Rates are on an upward trajectory now but you have to remember that they are going from rock bottom to a little higher than rock bottom. And each of these kings of things would have to be sustained for a few quarters to become a real concern. We just don’t see warning signs of a recession now.”
