California, which sent a delegation
to Austin last year to find out how the Lone Star State had beat
it in employment growth, surged ahead of
Texas to lead the
nation in
job creation for the last two consecutive months.
California added 365,100 nonfarm jobs in the year ending in
July, a 2.6 percent increase and the state’s largest 12-month
gain since 2000. Texas picked up 222,500, or 2.1 percent,
according to U.S. Labor Department
statistics. California also
outpaced Texas the prior month.
Texas led California in job creation in 18 of the last 24
months, since August 2010, the first month both states posted
employment gains following the longest recession since the
1930s. The latest numbers show that California has defied
comparisons with financially troubled
Greece, including a joking
reference by Republican presidential candidate
Mitt Romney
earlier this month.
“What these new figures do is drive a stake through these
weak Republican talking points,” said
Gil Duran, a spokesman
for California’s Democratic governor,
Jerry Brown. “California
jobs are coming back at a higher rate here. We hope that happens
everywhere.”
To be sure, California is the only state where three cities
have filed for bankruptcy in the past two months. The state’s
unemployment
rate of 10.7 percent in July was the third-highest
in the U.S., trailing only Nevada and
Rhode Island. Texas ranked
30th with a jobless rate of 7.2 percent, beating the national
average of 8.3 percent.
Austin Delegation
Texas’s economic performance impressed California
Assemblyman Dan Logue enough that the Republican from Linda
organized a delegation of California lawmakers and Lieutenant
Governor Gavin Newsom, a Democrat who was San Francisco mayor,
to Austin in April 2011.
California’s job picture reflects the depth of the
recession in the state, where the economy relies more on housing
and construction than energy-dependent Texas, said
Christopher Thornberg, principal of Beacon Economics LLC in
Los Angeles.
“California got hit a lot harder than Texas during the
downturn,” Thornberg said. “We hit the ground pretty damn
hard, so you’d expect more of a bounce back.”
The increase runs counter to the notion that growth favors
states with lower taxes. California, the
world’s ninth-biggest
economy, has the highest statewide
sales tax in the U.S., at
7.25 percent. That would rise to 7.5 percent if voters approve a
November ballot initiative. The income tax rate for those making
$1 million or more a year, now 10.3 percent, would rise to 13.3
percent, the most of any state.
Income Tax
Texas, the 13th largest economy if it were a country, has
no income tax. Most state revenue comes from a 6.25 percent
sales levy.
“Texas is still the model for job creation and economic
growth in this country,” said Josh Havens, a spokesman for
Governor
Rick Perry, a Republican.
The state that was once a sovereign nation will maintain
economic growth by following Perry’s policies of “low taxes,
restrained spending, reasonable and predictable regulations, and
a fair judicial system,” Havens said by e-mail.
Texas has higher general-obligation credit ratings than
California from both Moody’s Investors Service and
Standard &
Poor’s, meaning the state can borrow at more favorable rates.
Both states received top ratings for short-term notes they sold
in August. Texas completed a $9.8 billion sale of one-year notes
Aug. 21 at yields of 0.23 percent, a week after California paid
0.33 percent to 0.43 percent on $10 billion in short-term notes.
State Rivalry
The rivalry between the two most-populous U.S. states came
into relief in April 2011 when 10 Republicans and a Democrat
from California’s Legislature, accompanied by Newsom, visited
Texas to study its job-creation strategies. That month, Texas’s
year-over-year job growth of 254,400 was more than 100,000
higher than California’s.
Logue attributes much of the growth to early implementation
of President
Barack Obama’s health-care program. Educational and
health-care employment grew 3 percent in the year ended in July,
California’s Employment Development Department
reported. The
biggest increase was in professional and business services, at
5.4 percent.
Newsom, a Democrat elected separately from Brown, said
lingering difficulties such as negative equity on 2 million
homes in the state’s Central Valley threaten to hold back
California’s recovery.
‘Structural Problems’
“We may have another year or two of a recovery based on
low-hanging fruit, but we still haven’t dealt with our
structural problems,” Newsom said. “It’s good to be on the
other side of bragging rights in terms of our competitive
position with Texas, but we need to be cautious about reading
too much into that.”
California and Texas have different strengths. Texas has a
lower cost of living and fewer regulations, while California has
a more educated workforce and availability of
venture capital,
said Ray Perryman, a Waco, Texas-based economist.
“Both states have fiscal challenges, though California’s
is somewhat more severe,” Perryman said by e-mail. “Texas has
had the lead in that arena for some time, but long-term
investments in education and infrastructure (primarily roads and
water resource development) will be needed to sustain it.”
Moving Out?
Andrew Puzder, an executive who joined California’s
delegation to Texas, said he’s no longer considering moving his
company’s headquarters from Carpinteria to escape the state’s
taxes and regulations. Puzder is chief executive officer of CKE
Restaurants Inc., which operates the Carl’s Jr. and Hardee’s
fast-food chains.
Most economic recoveries are led by manufacturing and
construction, with professional services gaining afterward, said
Puzder, co-author of the book “Job Creation: How It Really
Works and Why Government Doesn’t Understand It.”
“Professional and business services are people who
generally are not involved in creating wealth,” Puzder said.
“They’re involved in managing and directing wealth.”
To contact the reporters on this story:
James Nash in Los Angeles at
jnash24@bloomberg.net;
Darrell Preston in Dallas at
dpreston@bloomberg.net
Via Bloomberg