California's last company town votes for independence

The company town is dead. Long live the company town.

Scotia, California's last company town, has voted to become independent, according to preliminary results from an election held Tuesday. With 147 votes cast (which amounts to not even half of eligible voters) 136 voted to make the town an independent community services district, essentially severing the town from the Manhattan investors who own it and turning over governance to a board of five people elected Tuesday.

The heavily wooded Scotia, founded in the 1880s by the Pacific Lumber Co., is set among the fog and redwoods of Northern California. The small town of 800 has been in a state of uncertainty since Pacific Lumber filed for bankruptcy in 2007. Marathon Asset Management, a hedge fund, obtained the town and its resources in bankruptcy proceedings and has been running the town ever since through a subsidiary called the Town of Scotia Co. That company maintains public spaces, fixes problems in the homes -- all rented -- and governs the town.

Now, the five elected board members will over governance on the last Friday of December, said Frank Bacik, president of the Town of Scotia Co. They'll get training on how to run a town, but Marathon still has to spend money to upgrade the town's aged sewer system before the rented homes can be sold to their owners and the town can be completely independent.

Though the town is still a few years away from independence, some are calling this Scotia's Independence Day, Bacik said. The town is unique from the 2,500 other company towns that operated throughout America in that it has survived its main business drying up and going bankrupt. It now hosts a brewery and water container manufacturer, and is hoping to attract more businesses.

"For me, it's been very exciting to see a community become independent," Bacik said. "We are no longer a company town -- the company town has died. But our company town has survived."

For a video that includes historic pictures of Scotia, go here.

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Construction employment continues to fall in California cities

Construction employment continued to slump in most of California's metropolitan areas in July, according to an analysis by the Associated General Contractors of America.

Employment fell 11% in Fresno in July from the same month the previous year. It dropped 5% in the Los Angeles metropolitan area and 4% in San Francisco.

Nationally, it increased in 136 out of 337 metro areas between July 2010 and July 2011, including Chicago, Houston and Detroit. The Chicago metro area added 12,900 jobs, increasing employment 11% over the year.

The construction industry was especially hard-hit by the recession, and advocates worry that it will continue to slump as local and state governments cut back on infrastructure improvements. Stimulus projects, which gave the industry a lifeline during the recession, have all but dried up.

"The big worry for construction workers is that private demand will again slip while governments continue to cut back on infrastructure investments," said Ken Simonson, chief economist of the Associated General Contractors of America.

Demand for homes isn't likely to pick up anytime soon. Home prices are at 2003 levels, and when adjusted for seasonality, remain essentially flat, according to the Case-Shiller index, released Tuesday. That's why construction groups like the AGC are urging governments to spend more on infrastructure in order to stimulate the economy, despite budget deficits.

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Photo: A construction worker stands on a new home in Riverside County. Credit: Alana Semuels/Los Angeles Times

Corporate profits increase as GDP remains sluggish

The nation's gross domestic product may be growing at just a crawl, but corporations aren't doing so badly in this economy, according to data released from the Bureau of Economic Analysis. Corporate profits increased in the second quarter, as did the amount of cash businesses had available for investments, as taxes decreased.

Corporate profits increased $57.3 billion in the second quarter, according to the BEA. They had grown $19 billion in the first three months of the year. But that growth didn't play out in the labor market, which experienced an unanticipated slowdown in May and June. The nation added just 316,000 jobs in the second quarter, according to data from the Bureau of Labor Statistics. That number is only slightly more than economists say we need to add per month for a real recovery.

The amount of internal funds available for investment grew $83.8 billion in the second quarter, after growing $21.1 billion in the first quarter. Tech companies were among those with growing profits in the second quarter. Last month, Google Inc. announced second-quarter net income of $2.5 billion and Apple made $7 billion over roughly the same time period, doubling its earnings from the same period a year ago.

Overall, corporate profits grew 8.3% over a year ago.

Business growth was slowed by turmoil in the financial industry, however. While overall, corporate profit rose, profits at financial institutions decreased $54.2 billion after falling $38.7 billion in the first quarter. Nonfinancial corporations saw profits grow $84.4 billion.

Still, the overall growth in profits was a piece of good news in an overall lackluster data release, according to analysts with IHS Global Insight. The corporate profits data were released with the second estimate for the gross domestic product, which the government now says grew at a rate of 1% in the second quarter, rather than the 1.4% previously projected. The widely expected revision was largely due to a decrease in exports.

Now, economists say they'll look to data in September to determine whether or not the country is headed for another recession -- which could happen whether or not corporate profits continue to increase.

"The U.S. is stuck in this low-growth rut and will be for some time to come. The outlook for employment and personal income growth, by extension, is equally poor as well -- whether the economy prints a negative GDP growth number or not," wrote Steve Blitz, Senior Economist for ITG Investment Research.

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Photo: A customer at an Apple store in April. Tech and other companies saw profits boom in the second quarter. Credit: Don Kelsen / Los Angeles Times

NLRB requires posting of workers' rights to unionize

The National Labor Relations Board has issued new regulations requiring companies to post notices informing employees of their rights to unionize, a vote of confidence in unions in a year that has seen organized labor come under attack as governments try to cut costs in a stumbling economy.

The ruling came after the board received 7,034 comments about the proposed rule from workers, employees and members of Congress.

The final rule, issued Thursday, was decided because employees might not know about their rights to unionize because of declining union membership. Unions have become less common in the workplace: 11.9% of employed wage and salary workers belonged to a union last year, down from 20% in 1983.

The board is also concerned that no one is required to inform workers of their rights under the National Labor Relations Act, passed in 1935. 

"The Board was established to ensure that employers and, later, unions respect the exercise of employees' rights under the NLRA," the ruling reads. "For employees to fully exercise their NLRA rights, however, they must know that those rights exist."

President Obama issued an executive order in 2009 saying that employees needed to be informed of their NLRA rights.

The NLRB has come under fire this year for what businesses and some Republicans are calling an attack on business. It is investigating whether Boeing has engaged in unfair labor practices by transferring some employees to North Carolina from Washington to avoid unionization. The NLRB is also looking into speeding up union elections, which business groups oppose. 

In a statement after the ruling, the National Right to Work Legal Defense Foundation said the rule was "designed to push workers into compulsory unionism." A statement by the foundation's president, Mark Mix, reads:

The NLRB's new rules are just the latest example of the Obama Labor Board’s biased approach to administering labor law. Just as the Obama administration promises to lessen the job-destroying weight of federal regulations, Obama's NLRB comes out with a new 'posting rule' to saddle every business –- from ‘mom and pop' stores to IBM –- with new mandatory posting requirements designed solely to grease the skids for more forced unionism.

Organized labor applauded the ruling. AFL-CIO President Richard Trumka said that "this rule gives clear information to employees about their rights under this fundamental labor law so that workers are better equipped to exercise and enforce them." A blog post on the AFL-CIO website mocked the response by business, saying "NLRB says Workers Need to Know Their Rights, Biz World Flips Out."

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Photo: Labor activists protest in Washington. Credit: Chip Somodevilla/Getty Images

 

Gov. Jerry Brown proposes job creation plan for California

Gov. Jerry Brown wants to expand a hiring tax credit and provide tax relief to businesses that buy manufacturing equipment, while getting rid of a loophole that voters supported in elections in 2010.

Brown's California Jobs First package was announced a week after the state Employment Development Department said that hiring slowed in July to just 4,500 jobs, helping push the  unemployment rate to 12%. The state has the second-highest unemployment rate in the nation, after Nevada. Business creation in the state has also slowed to a halt, according to a study released earlier this week.

"Boosting job growth in California is a top priority, and this proposal is a critical step in making sure the state does everything it can to support local job creation," Brown said in a statement.

The first part of Brown's plan expands a tax credit for hiring new employees. He wants the credit to include small businesses with up to 50 employees and to increase the credit to $4,000, from $3,000.

The second part will make start-ups exempt from the state portion of sales tax on manufacturing equipment for their first three years in business. It also exempts 3% of other firms for those same purchases. Brown's office estimates this will provide $1 billion in tax relief to businesses.

The third part could be the most controversial. It would make a single sales factor tax mandatory on all businesses in California. Currently, multi-state businesses can choose how their sales tax is calculated. They can chose between basing their taxes on the proportion of their sales occurring in the state, or on a combination of sales, payroll and property in the state.

One of the provisions of Prop. 24 in the 2010 election would have disallowed corporations from choosing how to calculate their taxes, but Prop. 24 was not passed. 

"It's time to enact this common sense plan that puts California's economy and our jobs ahead of out-of-state tax loopholes," said Assembly Speaker John A. Perez.

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Photo: Gov. Jerry Brown in Sacramento. Credit: Eric Paul Zamora/The Fresno Bee

 

Nevada, Michigan face slow comeback on jobs, forecast says

Nevada and Michigan won't return to peak employment levels until 2017 or later, according to an analysis from IHS Global Insight.

The two states, hit hard by the recession, aren't the only two with far-off dates for a return to peak in employment. California, Arizona, Florida, Georgia and Ohio won't see a return to peak until 2016 or 2017, the firm predicts.

The only states that are humming along in the jobs picture are Texas, Alaska and North Dakota, according to IHS.

The research firm also released projected employment growth rates in U.S. states from 2011 to 2017. The number of jobs in California will grow at an average annual rate of 1.6%, while employment in Texas will grow at 2.1%.

Arizona and Utah are projected to have the highest employment growth rates between 2011 and 2017, at 2.3% and 2.2% a year, respectively.

Some Sun Belt states have relatively high projected rates while recovery is still a long way off, said Jim Diffley, group managing director of U.S. Regional Services at IHS. That's because those states lost many jobs in the recession, but are also seeing high population growth, so they'll show higher rates of growth from the low levels of 2010.

The North Dakota projection seems to have already come true: Halliburton announced Thursday that it was adding 11,000 jobs, many of which would be located in North Dakota.

-- Alana Semuels

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California's net business creation falters

Between 2001 and 2009, California ranked either first or second in the nation for creation of net new business establishments. No longer. In 2010, the state plummeted to 50th, losing 4,600 business establishments from the prior year, according to a study by Economic Modeling Specialists Inc.

Economic Modeling Specialists Inc. calculates net new business creation by using the Quarterly Census of Employment and Wages from the Bureau of Labor Statistics.

In 2008, California had 32,829 net new businesses established. In 2009, that number slipped to 12,529, and last year, the state lost 4,632 businesses from the year before. The Golden State wasn't alone in seeing its business creation drop. Between 2009 and last year, 29 states saw their net business establishments decline, including Michigan and Ohio, all states suffering from high unemployment rates.

That's a startling contrast with Washington, for example, which created 2,531 net new businesses in 2008, 3,565 in 2009 and 8,315 last year. It ranks first in the Economic Modeling Specialists Inc. study. Other states that succeeded in creating new business establishments were Massachusetts, Texas, New York and Illinois.

Entrepreneurs often complain about stringent environmental regulations and government red tape in California as obstacles to doing business.

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Image: Graph of net new business formation. Credit: Economic Modeling Specialists Inc.

 

Homes in some markets are undervalued, report says

Home prices in 42 U.S. metropolitan areas including Las Vegas and Detroit are undervalued compared with historical average prices, according to a brief by real estate website Zillow.com. In areas such as Los Angeles, New York and San Francisco, though, prices are at a premium compared with historical averages, the website says.

Zillow uses a ratio that compares the median price of a home in metro areas with the median level of household income in that area. Historically, from 1985 to 2000, home prices were about three times the median household income. That ratio started growing during the housing bubble, until the end of 2005 in the U.S., when home prices were 5.1 times median household income.

Since then, the price-to-income ratio has fallen to 3.3% nationally. But in 42 metro areas, that ratio has dropped to lower than historical levels. In California, price-to-income ratios in Stockton and Modesto are 19% and 18% lower than they were historically. In Fresno, the ratio is 7% lower than it is historically.

On the flip side, the price-to-income ratio in 85 metro areas is higher than average. Those areas include Napa, Ventura, Los Angeles and, oddly enough, Riverside.

Zillow says that price-to-income ratios in areas such as Detroit may not return to historical levels "because of fundamental changes in local housing demand." On the other hand, in some metro areas, homes require less income than they once did, which could make them appealing to buyers.

"This, in turn, might suggest that demand for housing in these markets will increase as buyers take advantage of this value proposition," wrote Svenja Gudell. This will in turn produce "a stabilization in home values near-term, and longer term, the potential for price appreciation."

Beware Californians, a real estate site is telling you to buy now. Are we going to have a boom and bust all over again?

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Photo: A sign spinner advertises a housing development in Winchester. Credit: Alana Semuels/Los Angeles Times

 

Housing, industrial production data give conflicting signals

Economists had been waiting for a series of data releases Tuesday for an indication of where the direction the economy was headed. But so far the numbers have been mixed.

July housing starts were at a seasonally adjusted rate of 604,000, lower than June but higher than July of last year, the U.S. Census Bureau said. Permits for residential construction also declined, by 3.2%. But few had really expected housing to do well anyway.

"Today's economic data confirms that residential construction will not provide much of a boost to headline growth this year," Comerica economist Robert A. Dye wrote in a note.

On the flip side, industrial production numbers were better than expected. Industrial production grew 0.9% in July, according to the Federal Reserve. This was led by manufacturing of motor vehicles and parts, which started up production again after a lapse casued by the Japan earthquake and tsunami.

Those numbers were "a counterbalance to the drag from recent financial market volatility," Dye wrote.

For production numbers to keep growing, car sales must continue to rebound. Vehicle sales grew to 12.2 million in July, but recent hits to consumer confidence may stall this segment of the economy. The consumer confidence index plunged to 54.9 in August, according to the University of Michigan Consumer Sentiment Index, from 77.5 last February.

Chain store sales numbers from the week also indicate consumer confidence is flagging. Shoppers pulled back for the third straight week with retail sales falling 1.5% in the week ending Aug. 13. In the previous week, sales had declined 0.5%.

"Last week’s large-scale stock market drops and wild volatility added to consumers' concerns about the slowing and failing economy and as a result pulled back on their overall spending once again,” said Michael Niemira, ICSC vice president of research and chief economist.

For a schedule of economic data coming out in the next month, look after the jump.

Not as much 'Made in China' as you might think

Feeling guilty that those new sneakers you just bought were made in China, rather than the good ol' U.S.A.? Don't worry about it, say economists from the San Francisco Fed. Things made here still dominate the market.

Goods and services from China accounted for only 2.7% of U.S. personal consumption spending in 2010, according to the report, The U.S. Content of "Made in China." About 88.5% of U.S. spending last year was on goods made here.

"Although globalization is widely recognized these days, the U.S. economy actually remains relatively closed," wrote economist Galina Hale and researcher Bart Hobijn, in the report. "The vast majority of goods and services sold in the United States is produced here."

The largest share of products bought here but made in China is in the durable goods category, which includes cars, furniture and household equipment. About 12% of goods purchased in that category are made in China. Only 6% of nondurables -- including food, clothing, and fuel -- purchased here are made in China.

But even those goods made in China can contribute to the U.S. economy,  since U.S. companies earn money from shipping them here and selling them in stores. Some of the money spent on a $70 pair of sneakers made in China goes to the company that ships them here, the retail store that sells them and the marketers who try to sell them.

More than one-third of the price we pay for imported goods goes to U.S. companies, the researchers say, a fraction that's higher for Chinese goods.

"On average, of every dollar spend on an item labeled 'Made in China,' 55 cents goes for services produced in the United States," the report says.

These are important numbers to note as China's inflation rate grows, and goods and services produced there get more expensive. China's inflation rate this year is close to 5%. Those inflation numbers won't be as crippling to the economy as you might assume.

"It is unlikely that recent increases in labor costs and inflation in China will generate broad-based inflationary pressure in the United States," researchers say.

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Photo credit:  Undertown851 via Flickr

 

Young Americans waylaid by recession, study shows

The poor economy has hit the younger generation hard, as young'uns graduate from high school and college and find there aren't any jobs. A poll out Friday indicates that the pain may affect their future behavior, which in turn slows the economy even further, as young people postpone buying homes and starting families.

The Polling Company Inc./WomanTrend polled Millenials -- people aged 18 to 29 -- to ask them how the bad economy is changing their lives. Three-quarters of those polled said they have or will delay a major life change or purchase due to economic factors and 44% said they'd delay buying a home.

Nearly one-quarter said they'd delay starting a family, and 18% said they'd put off getting married (But maybe that's just an excuse -- perhaps "The economy's bad" is the new "It's not you, it's me"). Nearly 30% of those surveyed said they were delaying saving for retirement, paying off student loans and changing jobs or cities.

"The impact of the poor economy, in human terms, has been devastating," said Paul T. Conway, president of Generation Opportunity, a nonprofit. "This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity."

The unemployment rate for people 16 to 19 years old was 25% in July, according to the latest figures from the Bureau of Labor Statistics, although the overall unemployment rate for all workers was 9.1%. The unemployment rate for people 20 to 24 years old was 14.6%.

Household formation has already been affected, as the younger generation moves back in with their parents, rather than striking out on their own. The average size of a U.S. household has grown in recent years, after declining for decades. Slowing household formation is just one reason that demand for homes remains low.

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Photo: Families such as the Grissos have numerous generations under one roof to save on costs. Credit: Irfan Khan / Los Angeles Times