When did Orange County’s economy last peak?
Either “It’s complicated” or “May 15, 2006.”
You see, an economic peak, like beauty, is in many ways in the eye of the beholder. Or, it’s on your trusty spreadsheet.
On a national scale, a group of economist/academic types – the National Bureau of Economic Research – actually gets together to review business data to make what is seen as the “official” call when we’re in recession or expansion – of course, in hindsight. For the record, the last official U.S. business cycle peak was December 2007, but the bureau didn’t decide that until one year later.
But locally? Guess that’s my assignment.
When pondering any Orange County economic pattern, one high-profile metric of any business cycle’s peak would be overly dissected home prices. By DataQuick’s tally, its median selling price topped out in June 2007 at $645,000. And after a harsh collapse, a recent pricing rebound still leaves that benchmark $105,500 short – 16 percent – of a full recovery as of July.
Pricing may be the sexy part of the property game. But this is a business where most folks who ply the various related crafts get paid only by transaction. So home sales activity is a critical marker of the real estate economy’s health.
Surprising to many people, I’ll bet, is the fact that DataQuick’s monthly tally of Orange County home sales peaked a decade ago – way back in August 2003 at 6,337 residences sold. That era’s level of selling activity looks almost laughably high versus the average activity of the past 12 months (3,132). Don’t forget the far-too-easy loan-qualification terms of that day.
Real estate may dominate the local happy hour chatter, but it’s by no means the entire business story here. So what would a broader marker show, such as Orange County unemployment?
The state Economic Development Department tells us that the job market peaked – that is, by unemployment math, the cyclical low – in December 2006 at 3.1 percent. Sadly, a modest economic recovery has left Orange County unemployment at 6.5 percent, as of July.
Job count, another key state employment measure, confirms the late 2006 employment peak. Orange County bosses had a record 1.54 million workers on the job in December 2006. The past year’s local hiring spree still leaves the tally of Orange County workers 116,100 – or 7.5 percent – below the peak.
Clearly, real estate is just one part of the bigger business puzzle. And in this curious economic period, I’ll argue that hiring trends seem more an expression of antsy thinking by bosses rather than any all-encompassing accounting of economic patterns.
So what of the consumers and their spending patterns?
Well, one good measure of shopping habits is sales taxes collected quarterly by the Orange County Transportation Authority. This measure of local consumer activity peaked in the fourth quarter of 2006 at $71 million. By the fourth quarter of 2012, OCTA’s tax take was still 5 percent short of the peak.
Yet, please note another sign of consumers’ differing view of the economy than, say, their bosses. This year’s first quarter OCTA sales tax revenue – $63 million – was only a whisker below 2007’s record sales taxes for the opening three months of a year.
So as you can see, a peak depends on one’s point of view. I’ll admit there’s an anecdotal argument to be made for some day in 2006. Mathematically, I peg it as May 15, 2006.
How so? Well, that’s the average of the midpoint dates of the five economic indicators’ peaks I’ve just discussed. Think of it as a composite peak.
More to the history lesson aspect of this exercise, were there any economic warning signs on my self-selected fateful day?
In the news archives I saw reports that economists at the Federal Reserve were clueless to the brewing problems: The Fed was projecting more economic growth – after it had raised interest rates 14 times. To be half fair, it took another 19 months for U.S. business expansion to halt.
At least some homebuilders felt queasy on my peak day. A national survey showed their collective optimism had plunged to an 11-year low.
I did say some homebuilders.
In Orange County on my peak day, building legend William Lyon announced he had bought out the public shareholders of the company he helped found. Yet today he and his family control only one-fifth of William Lyon Homes. The Great Recession forced the company through painful bankruptcy reorganization. A homebuilding revival, though, got Lyon Homes’ stock trading again on the New York Stock Exchange, with a market value nearing $700 million.
Like I said, peaks are all in the eye of the beholder.