Don’t let 5% unemployment fool you about California’s economic health

[Source: Real Clear Markets] “It’s the economy, stupid,” – now an iconic political statement, in many ways sums up decades of political science research showing that voters care about the current state and prospects of their pocketbooks. Of course, local, state, national, and even occasionally, international issues flare up and matter, but on a whole, “it’s the economy, stupid.”

Thus, heading into election season, it’s good to check in on Californians’ economic confidence. And once again, the Hoover Institution Golden State Poll surveyed just that. Overall, while the state is improving, there remain still hints of anxiety.

California’s unemployment rate has recently fallen to 5.3%, the lowest level since June 2007. But median household income is still almost 10% below pre-recession levels. While California has made strides from the depths of the Great Recession, more or less, it’s getting better because it isn’t getting worse. And this feeling is born out in the Golden State Poll.

Compared to the first Golden State Poll in September 2013, on the whole, personal finances are trending in the positive direction. In September 2013, by almost two-to-one, Californians said their finances were worse off than better off from a year prior. But now, at 23% better off vs. 25% worse off, the two are statistically tied. However, this impressive 14 point net swing in the better off direction masks the fact that a strong plurality (46%) says their finances are the same as a year ago.

The lines are going in the right direction, but not dramatically enough to make a true dent in the dip so many Californians experienced.

Looking forward, we see more of the same. In September 2013, more Californians (21%) said they expected to be financially better off in six months than worse off (19%). That margin has only increased to 26% vs. 13%. But despite this improvement, a majority (50%) still says they expect to financially be the same in six months. The optimism really comes from the fact that most Californians, at least, don’t think they are going to become less financially stable in the coming months.

The strongest sign, however, that Californians are turning the corner on their economic confidence is the job mobility. Exploring employed Californians’ confidence in being able to find a similar paying job within six months highlights whether Californians are anxious about the job market. Between September 2013 and May 2016, we have seen a flip in that confidence: from 40% confident to 55% not confident in 2013 to 54% to 42% today. Moreover, awhile back I pointed out that middle-class was less confident about their job mobility compared to those in lower- and higher-income families – suggesting that California’s job recovery was creating a strong bifurcation of income levels – but the recent Golden State Poll shows a strong swell of confidence among all income levels. If this trend continues in future Golden State Polls, then this could be a sign that California recovery is finally becoming healthy.

But what does all of this mean for the upcoming June and November elections? Given California’s heavy Democratic tilt, it puts Republicans at a further disadvantage. With Californians seeing more light at the end of the tunnel, the prospects of them punishing the incumbent party in power grow slimmer.

Hillary Clinton has been running on continuing President Obama’s policies. Among those who say they are better off financially than a year ago, Clinton expands her lead over Sanders by 4 points. Among all others (those who have financially remained the same or become worse off), Clinton’s lead contracts by 3 points. Moral of the story: the more financially confident, the more likely individuals will reward the incumbent.

In the open U.S Senate race, Democrats get a significant bump from those who say they are financially better off. Overall, California’s likely June primary voters support the Democrats over the Republicans by 21 points. But that swells to 31 points among those who are feeling financially confident (versus just 16 points among all others).

And this trend continues with an early look at the November general election between Hillary Clinton and Donald Trump. While Clinton leads Trump by a closer-than-usual 12 points overall, among those who say they are financially better off, the former Secretary of State’s margin increases by 19 points. Among all others, Trump is down just 5 points.

How voters perceive the economy is important during elections. But just because perceptions might be good doesn’t mean elected officials should rest easy. California may have 5% unemployment right now, but that doesn’t necessarily mean the Golden State’s economy is healthy.

Source: Real Clear Markets/Carson Bruno
June 2, 2016