Most small business owners in California are afraid the economy will go into a double-dip recession.

A survey released today by Citibank says 85 percent of the state's small business owners are concerned about a double dip.

The findings are in line with growing pessimism among some economists.

The survey added that 74 percent believe they've prepared themselves for another downturn. Some 67 percent say they've changed the way they're doing business, with many reducing their debt, increasing cash reserves or imposing hiring freezes.

Only 28 percent said their businesses are better off today than a year ago; 51 percent said they believe their business will do better over the next year.

The statewide unemployment rate for July was 12.3 percent, the Employment Development Department said today.

California lost 9,400 jobs during the month, mainly the result of temporary Census Bureau positions ending.

Sacramento's unemployment rate rose to 12.7 percent, up 0.3 percent, as seasonal school layoffs contributed to a 5,300 decline in jobs.

State officials noted that the private sector added 13,700 jobs in California. although it wasn't enough to offset the loss of government work. "There's kind of some good news buried in there," said Dennis Meyers, economist at the state Department of Finance.

He said California's private payrolls have added jobs six of the last seven months.

Still, the numbers underscore the weakness of the recovery. California's unemployment was third highest in the nation, according to the US Bureau of Labor Statistics. No. 1 was for the third straight month was Nevada at 14.3 percent, followed by Michigan at 13.1 percent.

We're a day away from the monthly checkup on the job market in California and Sacramento, and chances are the numbers will be less than inspiring.

If you'll recall, the number of jobs nationwide fell by 131,000 last month, and the state and local numbers tend to go in tandem with the national figures. While there was a small amount of private sector hiring nationally last month, the new jobs were more than offset by the government layoffs caused by the conclusion of the US Census count.

And as you may have heard, the economic news in general hasn't been too spectacular lately. The stock market tumbled again today, based on some weak economic data, and it's once again appropriate that the state and local unemployment results will be released the same day that Furlough Fridays resume. It's a reminder of the fragility of the economic recovery around here and the Sacramento area's continued dependence on state government.

In June, unemployment was 12.4 percent in greater Sacramento and 12.3 percent statewide.

Look for the July numbers on www.sacbee.com sometime around mid-morning.

The weak economy continues to depress results at Red Hawk Casino, the casino's operating company said today.

Lakes Entertainment Inc. of Minneapolis said second quarter revenue fell sharply. The main reason was a poor quarter at its Michigan casino, but Red Hawk contributed to the decline as well. Management fees from the Shingle Springs casino, which are based on operating results, fell compared to a year ago.

Red Hawk "continues to face challenges in its market due to the harsh economic conditions in California," said Lakes Chairman and Chief Executive Lyle Berman in a press release.

Total company revenue dropped 32 percent and the company reported a loss from operations. But because of various one-time adjustments, Lakes' bottom line net income grew to $3.9 million from $2.8 million.

Despite relatively high operating costs, Davis and Folsom are listed among the top 45 small cities in America for running a technology company, according to a consultant's report.

The consultant, John Boyd of Princeton, N.J., advises corporations on site locations. He said Davis and Folsom offer talented workers, access to the UC Davis brainpower and state policymakers, among various attributes. They also provide a "low-cost alternative to the Bay Area," he said during a visit to Sacramento this week.

Boyd said he surveyed 45 of the "up and coming...best small markets in the country" for high tech. Davis and Folsom made the list - although they're among the most expensive on it.

He said it would cost $27 million a year to run a hypothetical 250,000 square foot high-tech factory in Davis, a little less in Folsom.

Boyd released his study at a time when companies are beginning to look around again for new locations, following a multi-year freeze brought on by the recession. "Clients are taking projects off the shelf," he said.

The hits keep coming for the weak Sacramento area economy.

Gov. Arnold Schwarzenegger's decision to revive Furlough Fridays will lower state payrolls $147 million a month statewide. About a third of the loss will come in Sacramento, home to 84,000 workers.

The order will cut into "a substantial amount of consumer spending," said economist Jeff Michael of the University of the Pacific.

Jon Ortiz of The Bee's Capitol bureau has plenty of details on the governor's order, which will last until he signs a new state budget.

We'll have lots of coverage in Thursday's Bee about the order and its economic impact.

New York real estate folks are buzzing about CalSTRS, the California State Teachers' Retirement System.

The pension fund is trying to sell its equity stake in a 40-story Manhattan office tower, according to reports by Bloomberg and other news services.

The potential sale is seen as important because the market has been so quiet the past two years. Only five office buildings have been sold in lower Manhattan since fall 2008, Bloomberg reported.

While quite a few real estate deals have turned out poorly for CalSTRS and its sister fund, CalPERS, this one could be a winner. CalSTRS "has decided to harvest some of the gains," broker CB Richard Ellis Investors said in a statement to Bloomberg.

CalSTRS spokesman Pat Hill said CalSTRS paid $70.4 million for its stake in 2004. He wouldn't comment further as the "property is not yet on the market."

Vacancies in Sacramento area shopping centers are declining for the first time in three years.

Colliers International real estate brokerage reports that the second-quarter retail vacancy rate fell to 13.4 percent from 13.7 percent in the first quarter.

Garrick Brown, research director in Colliers' Sacramento office, said a couple of factors are at work. First, discounters are swooping into the market. Second, there are terrific cut-rate deals to be had as a result of the real estate meltdown.

He said vacancies will likely fall as low as 11 percent by the middle of next year, but then the recovery will stall out because of the weak economy.

"We still have major issues," he said.

We've written a lot about the housing market and the degree to which it's recovering. Here's some encouraging news on commercial real estate in Sacramento.

Vacancies fell in Sacramento's office and industrial markets in the second quarter, according to a report today from Grubb & Ellis real estate.

On the office front, the vacancy rate in the region fell 0.4 percent, to 20.2 percent. Among the major sub-markets, downtown Sacramento remains the tightest, with an 11.7 percent vacancy rate. Vacancies above 30 percent remain in markets like South Placer and Elk Grove.

The industrial vacancy rate dropped a full percentage point, Grubb & Ellis said.

Home sales dropped in June in California, but the prices continued to increase, the California Association of Realtors said today.

The figure are in line with recent trends. Sales have dipped lately with the expiration of a federal tax credit April 30. But California pricing has continued to improve despite the shakiness of the economic recovery.

The association said the volume of sales declined 4.2 percent statewide in June. Median prices increased 13.6 percent compared to a year ago, to $311,950.

In greater Sacramento, the sales volume grew 1.7 percent from a year ago. Prices rose 7.6 percent, to $196,220.

Since bottoming out in April 2009, Sacramento median sale prices have improved 17.3 percent, the association said.

Mortgage defaults fell to a three-year low in California in the second quarter, market researcher MDA DataQuick said today.

However, the number of actual foreclosures rose slightly.

The latest numbers represent further evidence of a housing market that's finding stability but hasn't yet roared back to life. In California, foreclosures increased 4.4 percent compared to a year earlier.

The increase was more dramatic in the Sacramento region. Foreclosures jumped 21 percent from a year earlier in the region, DataQuick said.

Defaults, however, continue to ease. Defaults are the first formal step on the road to foreclosure. Statewide defaults fell 44 percent from a year earlier. In the Sacramento region, stretching from Amador to Nevada counties, defaults fell 38 percent from a year earlier.

 DataQuick analyst Andrew LePage said the drop in defaults signifies that "the market has stabilized in most areas." But at the same time, he said, more distressed homebuyers are going through short sales. That means they're sidestepping default and foreclosure.

Sales of new homes in California fell 46 percent in May compared to a year ago, the California Building Industry Association said today.

The decline in greater Sacramento was 51 percent.

The CBIA report, compiled by Hanley Wood Market Intelligence, essentially confirms what my colleague Jim Wasserman reported a couple of weeks ago: that new-home construction in Sacramento has become moribund. His story, based on a study by Folsom consultant Greg Paquin, showed that new-home sales in Sacramento fell 50 percent in the second quarter compared with a year earlier.

Analysts blamed the expiration of the federal tax credit April 30.

The economy continues to drift, and the effects show up in different ways around here.

First comes the news that Amador Bustos' Spanish-language radio-TV empire is crumbling. Bustos Media's assets have been taken over by their lenders, a sad turn of events for one of Sacramento's most compelling business executives. I've linked to my colleague Mark Glover's breaking news story here; we'll have more analysis and background in Friday's paper.

Meanwhile, there's no breakthrough in the state budget situation, but Gov. Schwarzenegger today did officially declare the end of furloughs. Jon Ortiz, the State Worker columnist, has the story.  

Overhauling the state's pension system remains one of the hottest topics in California politics. Our colleague Jon Ortiz has the latest on two more unions falling into line with Gov. Arnold Schwarzenegger's plans for rolling back costs.

Still uncertain is what will happen with the largest union, powerful SEIU Local 1000.

Earlier, four other unions agreed to pension concessions. And more than a handful of states have been rolling back pension benefits in an effort to cut costs.

In California, the backdrop of all this is the specter of CalPERS and CalSTRS coming to the state for more money, in part to help them recover from huge investment losses of 2008. CalPERS is raising the state's contribution by $600 million in the new fiscal year. Next year CalSTRS, which needs lawmakers' permission, will go to the Legislature to discuss higher contributions.

Michael Bernick, former head of the Employment Development Department, makes an interesting point in his blog on the Fox & Hounds Web site.

The job market historically does come back, no matter how bleak things seem now.

Bernick is one of the savvier labor market analysts in the state, and it's worth taking a look at his blog post. You can find it here:

http://www.foxandhoundsdaily.com/blog/michael-bernick/7199-will-hiring-ever-return-california

Unemployment fell to 12.4 percent in California last month as the state recorded its fifth straight month of job growth, although the numbers still reflect a weak recovery.

Payrolls grew by 28,300 jobs in May, the Employment Development Department reported today. The statewide unemployment rate fell a tenth of a point from a revised 12.5 percent.

The job growth was twice as high as in April, when meager hiring prompted economists to fret that the recovery was failing to gather momentum. However, it's also clear that much of the hiring in May was due to temporary hiring by the U.S. Census Bureau; the federal government added 30,000 jobs during the month.

Howard Roth, chief economist at the state Department of Finance, said the California's non-farm private sector actually lost 1,700 jobs during May.

Sacramento's unemployment rate fell to 12 percent, down from a revised 12.3 percent in April. The region added 3,800 jobs during May. As on the statewide level, the big gain was in federal government payrolls as the census geared up.

California still had the third highest unemployment rate in the U.S. in May, trailing Nevada (14 percent) and Michigan (13.6 percent). May marked the first time since April 2006 that a state other than Michigan had the worst unemployment in the nation.

Consumers are more confident about the economy, in California and across the country. But the increased confidence isn't translating into spending.

That's the gist of some new surveys out today.

In California, consumer confidence continues to rise, according to a regular survey by Orange County's Chapman University. The university's Composite Index of Consumer Confidence increased to 82.7 in May, up from 81.1 in February. Confidence has been steadily rising since August.

On the national level, confidence is at its highest point since January 2008, according to the Reuters/University of Michigan survey.

On the flip side: The US government reported that retail sales fell 1.2 percent in May. It was the first drop in eight months and was a surprise to analysts. The news sent stocks tumbling, albeit modestly, in morning trading.

California's tax collections ran well ahead of expectations last month.

State Controller John Chiang, in his monthly report, said today the state took in $6.61 billion in total revenue in May. That was nearly 25 percent better than last year and almost 10 percent ahead of Gov. Arnold Schwarzenegger's latest forecast.

The May results show economic progress, but the state's recovery isn't happening quickly enough to wipe out a projected $19 billion deficit forecast for the upcoming fiscal year.

"The financial problems before the Legislature and governor remain just as daunting and time-sensitive as they did a month ago," Chiang said in a press release.

CalSTRS joined two other investors this week in suing officers and directors of Massey Energy, the company being blamed in the West Virginia coal mine explosion that killed 29 workers.

The teachers' retirement system, along with Amalgamated Bank and Manville Trust, filed the suit in state court in West Virginia. The suit says Massey executives violated their duty to shareholders "by consciously ignoring the company's obligations to comply with federal and state law." CalSTRS noted that the Massey mine had been cited numerous times for violations in the months leading up to the blast.

CalSTRS owns more than 336,000 shares of Massey. The stock was trading at $30.30 a share this morning on the New York Stock Exchange.

You look for signs of upward momentum in the economy wherever you can find them. Here's one sign, just released today:

Business confidence in the Bay Area is the highest it's been in five years.

That's according to a survey by the Bay Area Council, which conducts surveys on this topic every quarter. The survey of 500 CEOs showed 58 percent think business conditions in the Bay Area are better than they were six months ago.

Perhaps more importantly, 63 percent said they expect conditions to improve in the next six months.

It might not be too surprising that Bay Area folks are generally upbeat. Although the East Bay has been rocked by the closure of the NUMMI auto plant, the tech sector has been on the leading edge of the economic recovery.

Aerojet, SMUD and Roseville's Solar Power Inc. today announced they've completed a significant expansion of a solar-energy facility at Aerojet's Rancho Cordova campus.

The three companies said they've finished a 2.4 megawatt expansion of the project. It's now a 6 megawatt facility, using more than 29,000 of the Roseville company's photovoltaic modules.

The companies said the program at Aerojet, which covers 40 acres, is the largest single-site industrial photovoltaic generating facility in the state. Aerojet will use all of the electricity.

The facility first opened last fall. 

In another sign the regional economy is perking up, Thunder Valley Casino is hiring 100 more workers.

The hiring is in addition to the 600 employees the Lincoln casino hired this spring as it prepares to open its hotel tower and other new amenities in July.

Spokesman Doug Elmets said the casino realized the 600 employees weren't enough. It needs an extra 100 serves, cooks and others.

"If the casino busienss is any indication...the economy is on the uptick," he said.

The casino employs around 2,300 full- and part-time workers.

Elmets said job seekers must first apply at the casino's Web site, www.thundervalleyresort.com , and then attend a job fair Saturday from 9 a.m. to 5 p.m. at the casino's employment center on Athens Avenue across from the casino. 

I don't pretend to understand what drives daily fluctuations in the stock market. But here's my broad-brush sense of how things work:

As the US economy goes, so goes Wall Street. The debt crisis in Europe will probably continue to raise hell with stocks. But as long as traders believe the US economy is fundamentally improving, then stocks will stay relatively healthy. That doesn't rule out a correction; it just means we're probably not in for a repeat of 2008.

Sure enough, stocks rose today on good economic news:

NEW YORK (AP) -- Stocks rose Wednesday after gains in durable goods orders and home sales helped reassure traders that a rebound is occurring. The Dow is up about 90 points as I write this.

So there you have it. Rest easy. Unless I'm wrong.

California's unemployment rate was stalled at 12.6 percent in April even though the state added jobs, the state announced today.

The state did add 14,200 jobs in April. That means California payrolls have grown by a total of 56,000 jobs this year.

But the state is clearly lagging the U.S. recovery, which produced 290,000 jobs nationwide last month. In California, "the job growth is modest," said Michael Bernick, a labor lawyer and analyst in San Francisco. "There are other states with smaller economies who are creating more jobs."

The U.S. Bureau of Labor Statistics said California's rate was the third highest in the nation, behind Michigan (14 percent) and Nevada (13.7 percent).

Sacramento's unemployment rate in April fell to 12.4 percent, down from 13.1 percent a month earlier. However, the region actually lost 200 jobs during the month, largely the result of unexpected losses in farm employment, said Alex Alvarado of the state Employment Development Department.

The wet April weather delayed farm hiring across the region, said Russell van Loben Sels, a Courtland pear grower and president of the Sacramento County Farm Bureau.

The managers of Red Hawk casino say they're still being hampered by the region's economy.

Management company Lakes Entertainment Inc. provided an update on the Shingle Springs casino while reporting first quarter financial results.

The weak economy and housing market, plus uncertainties about the state budget, "continue to impact Red Hawk's ability to achieve" consistently strong results, Lakes Chairman Lyle Berman said in a conference call with investment analysts.

Overall the company's first quarter revenue fell to $7 million from $7.3 million a year ago, although much of the decline was due to increased competition at a casino in Michigan.

The company said "improved operating efficiences" are helping Red Hawk's profitability. Lakes trimmed employment at Red Hawk shortly after it opened in December 2008.

Gov. Arnold Schwarzenegger's revised budget, released earlier this afternoon, says the economy is improving but not quickly enough to erase the deficit.

The the so-called "May revise" points to a $19 billion deficit. The accompanying economic forecast is rosier than the one Schwarzenegger released in January, to the tune of an additional $3.7 billion in tax revenue in the upcoming fiscal year.

But still it won't be nearly enough to cure the budget.

"The outlook for the near future is positive but sober," the forecast says.

We know that California has been lagging the U.S. recovery. When the stronger-than-expected nationwide jobs report for April came out last Friday, economists told us California was on the brink of joining the party. We'll see next Friday, when the state and local job figures are released, if that's true.

We already know Schwarzenegger's team was disappointed with the results of April's income tax collections; they were well below expectations.

Look for more in Saturday's paper.

Officials with California's two public pension funds tried to convince legislators today that they're complying with a law requiring the sale of stocks of international companies doing business in Iran - even though they've dumped almost none of their holdings.

CalPERS and CalSTRS told the Assembly Accountability Committee that they're following the law by pressuring the companies to pull out of Iran. In many cases, they said they've succeeded, and only a handful of their investments have any Iran ties.

Only CalSTRS, the California State Teachers' Retirement System, has actually sold any stocks because of the 2007 law.  The board of the California Public Employees' Retirement System has decided not to sell any stocks in deferrence to its fiduciary duties - its legal obligation to make as much money as possible for its members.

Committee members were mostly satisfied with the explanation but Chairman Hector De La Torre, D-South Gate, said he believes the pension funds should part ways by year's end with companies that refuse to change their business behavior in Iran. CalPERS and CalSTRS should be able to find "equivalent or better investments" without harming their portfolios, he said after the committee hearing.

CalSTRS and CalPERS have come under fire for not unloading their Iran-related investments. But officials with the funds say they can exert more influence through "constructive engagement" than by selling their stocks.

"When we sell the stock, it's like taking our ball and going home," said Chris Ailman, CalSTRS' chief investment officer.

But Cliff Berg, representing the Jewish Public Affairs Committee, said CalPERS and to a lesser extent CalSTRS are simply ignoring the law. It "was the Iran Divestment Act, not the 'Iran engagement act,''' he told the committee.

California officials filed a fraud suit against the former chief executive of CalPERS and his close friend, a former pension fund board member turned placement agent, in an explosive new twist in the influence-peddling scandal that's been simmering at CalPERS for months.

The lawsuit by Attorney General Jerry Brown says former CalPERS CEO Fred Buenrostro accepted thousands of dollars worth of gifts from Alfred Villalobos, a former CalPERS board member who has earned tens of millions of dollars as a placement agent. These agents are hired by private equity firms to obtain investments from public pension funds such as the California Public Employees' Retirement System.

Among other things, the suit says Villalobos "substantially subsidized" the cost of Buenrostro's 2004 wedding at Villalobos' Lake Tahoe mansion - an incident first reported by The Bee last fall. Buenrostro has said he reimbursed his host.

The suit demands the return of at least $70 million in commissions earned by Villalobos over the years from CalPERS investments.

The suit was filed in Los Angeles County Superior Court. Brown, at a press conference today in Sacramento, said CalPERS "should have run a much tighter ship."

The state won a court order freezing Villalobos' 21 bank accounts and numerous properties at Lake Tahoe, Hawaii and elsewhere. It said it needed to freeze the assets because Villalobos is a "frequent, high-stakes gambler" with a history of "moving large sums of money" around. He could squander his money paying gambling debts before the state can pursue its case, the state argued.

The suit says Villalobos' gifts "compromised the integrity of CalPERS' investment process." It says he has a reputation in the investment industry as someone "who attempts to exert pressure on CalPERS' representatives."

It also says Villalobos frequently entertained Buenrostro and recently retired CalPERS board member Chuck Valdes "and paid for their meals, drinks and entertainment at Christmas parties." Valdes wasn't named as a defendant. The Bee reported last fall that he accompanied Villalobos on a round-the-world trip in 2006, and while Valdes produced a check indicating he reimbursed Villalobos for the cost, the lawsuit called that statement "questionable."

The suit also said Villalobos arranged for Valdes to attend the Oscars in 2006. Moreover, Villalobos arranged for three of his employees, including his daughter Carrissa, to contribute thousands of dollars to Valdes' re-election campaign for the CalPERS board in 2005, the suit says, reimbursing them for their costs. 

The suit also said CalPERS investment official Leon Shahinian accompanied Villalobos on a trip to New York in 2007 to attend a fundraiser hosted by Leon Black, the founder of private equity firm and frequent Villalobos client Apollo Global Management. Two weeks later, Shahinian recommended that the CalPERS board approve a $700 million investment with Apollo. Eventually the board approved a $600 million deal with Apollo, one of CalPERS' biggest investment partners.

CalPERS officials said Shahinian, who wasn't named as a defendant in the suit, has been placed on administrative leave, with pay. 

According to the lawsuit, neither Buenrostro, Valdes or Shahinian disclosed their gifts from Villalobos on the conflict-of-interest forms they filed with CalPERS.

CalPERS praised Brown for bringing the suit and said it was "deeply troubled" by the allegations. Villalobos, Shahinian and Buenrostro couldn't be reached for comment. Someone answering the phone at Valdes' home said, "We don't do interviews." 

Buenrostro was CalPERS' chief executive until 2008. He has acknowledged going to work for Villalobos' firm, Arvco Capital of Stateline, Nev., a year later. But the lawsuit said he became Villalobos' business associate just a day after leaving the pension fund, earning $300,000 a year. "Buenrostro was compromised by Villalobos' gifts so much that he was already working for Villalobos before he even left CalPERS," the state said. For instance, he planned a trip to India to make a speech on Villalobos' behalf nearly a month before he left CalPERS in June 2008. 

(Photo of former CalPERS CEO Fred Buenrostro/Bee file, 2005)

A new study out today points to a better job market in California.

The California employment indicator index, compiled by the economic research folks at Orange County's Chapman University, has jumped sharply in the second quarter to a reading of 94.8.

That compared with 81.9 on the job meter in the first quarter.

Chapman's economists noted that California created 32,000 jobs in the first quarter, and the index "suggests that job creation should continue in the second quarter."

CalPERS has won court permission to proceed with a $1 billion lawsuit against the three big Wall Street credit-rating agencies.

A San Francisco Superior Court judge rejected a request by the rating agencies to toss out the CalPERS suit, which stems from a string of failed investments.

"We are pleased with this result," said CalPERS spokesman Brad Pacheco.

In the suit, the California Public Employees' Retirement System says it relied on ridiculously high ratings when it poured more than $1 billion into the deals, known as structured investment vehicles. The investments all went bust in 2007 and 2008.

The rating agencies - Moody's Investors Service, Standard & Poor's and Fitch Ratings - have said they did nothing wrong.

It's hard to compete against the glitter and glamor of Hong Kong and other Asian datelines posted by my globetrotting Home Front colleague Jim Wasserman.

But I think it's worthwhile to take a look at a California small-business survey released this week by Citibank. It's a street-level glimpse of the struggles faced by business owners and the long road to recovery they face.

According to the survey, 79 percent say business conditions in California are fair or poor. Some 45 percent say their own business condition is worse than it was a year ago - a fairly grim outlook in view of the reasonably upbeat economic news out there. Only 21 percent expect to increase their payrolls over the next year.  

Still, things aren't all bad: 55 percent of small business owners in the state say their business is doing better than expected, and 44 percent say they expect imprvement in the next 12 months.  

Sempra Energy, the parent of San Diego's electric utility, announced today it will pay $410 million to settle charges stemming from during the California energy crisis.

The charges have to do with business practices at Sempra's electrical-trading company, not its retail utility San Diego Gas & Electric. The money will be refunded to California consumers.

"The settlements will put hundreds of millions of dollars back into the pockets of California energy consumers who suffered blackouts and great economic harm during the energy crisis," said Attorney General Jerry Brown in a press release.

The charges have to do with Sempra's wholesale electricity trading practices. Sempra was accused by the state of "Enron-style gaming" and "a pervasive pattern of market manipulation and abuse."

Sempra's chairman and chief executive, Donald Felsinger, called the settlement "a fair and reasonable outcome for both our shareholders and the state of California." The agreement will cut the company's first quarter earnings by $96 million, or 38 cents a share, after taxes. 

The state has obtained billions of dollars worth of settlements over the crisis.

Fresh off a breakthough agreement on management fees with Wall Street powerhouse Apollo, executives at CalPERS are continuing to put pressure on other private equity firms to fall into line.

Joe Dear, the pension fund's chief investment officer, made a splash at a Milken Institute conference in Beverly Hills on Monday. As reported by Reuters, he said, "It just drives me nuts when I think about managers who are generating profits off the management fees."

Last week CalPERS extracted  a big concession from Apollo Global Management, its biggest private equity partner (and the biggest client of controversial placement agent Alfred Villalobos, the former CalPERS board member): Apollo will lower its management fees $125 million over the next five years. Apollo also promiised not to use agents again when soliciting money from CalPERS.

Dear wants to use the Apollo deal as a template for others. Speaking in Beverly Hills, he said, "That's a significant step forward and we intend to take that to our other significant private equity relationships.

"If we don't take advantage it's a missed opportunity," he added.

New car sales, after a crippling downturn, are starting to come back.

Sales increased 19.8 percent in California in the first quarter, the California New Car Dealers Association said today.

Business got better as the quarter progressed; the increase for March was more than 30 percent.

"Pent up demand and manufacturer incentives have returned new car buyers to the market," said association Chairman Tom Hoffman.

The results are comparable to national sales figures reported by the major automakers recently.

The market for office space is still weak.

The latest report from Colliers International shows the overall vacancy rate for all types of office space in greater Sacramento crept up to 16.2 percent in the first quarter.

That compared with 15.9 percent in the fourth quarter, and 14.9 percent a year ago.

Not all areas of Sacramento are feeling it equally. The Point West area, the region around Arden Fair mall, has been clobbered by the loss of USAA's call center, according to Colliers research director Garrick Brown. Vacancies are at 28.6 percent.

The overbuilt Roseville-Rocklin area isn't doing much better, with a 26.6 percent vacancy rate.

At the other end of the spectrum, downtown Sacramento remains healthy. Vacancies are a mere 8.3 percent.

California's unemployment inched up to 12.6 percent last month even though the state added 4,200 jobs, the federal government reported today.

The numbers from the Employment Development Department are further evidence of the economy beginning to stir.

It's not unusual for the unemployment rate to keep rising because some unemployed workers, encouraged by the news that employers are hiring, resume their job searches. Because there aren't enough new jobs to go around, these workers are counted among the unemployed again.

Still, this marked the third straight month that California has added jobs.  So far this year the state has gained a total of 32,400. The unemployment rate was 12.5 percent in February.

A similar phenomenon took place last month in Sacramento. The region enjoyed job growth but unemployment shot up past 13 percent again, landing at 13.1 percent. Taht was two-tenths of a percent higher than in February.

The area added 3,400 jobs in March. Construction added 1,100 jobs - slightly higher than usual.

CalPERS and CalSTRS are moving to prohibit controversial real estate investments that rely on raising rents on housing units that had been subject to rent-control laws.

Critics call such investments "predatory equity" and have blasted CalPERS in particular for investing in these deals. Two big ones blew up in CalPERS' face in the past year, one in East Palo Alto and one in New York, costing the pension fund a combined $600 million. CalSTRS lost $100 million on the New York deal.

CalPERS' investment committee next Monday will take up a staff proposal to ban many of these investments. "These investments have exposed CalPERS to risks including, but not limited to, damage to CalPERS reputation as a responsible investor," staffers said in a written proposal to the investment committee.

The move comes several weeks after Assemblyman Tom Ammiano, D-San Francisco, introduced legislation to bar both pension funds from making investments like this.

Tenants' rights advocates gave the CalPERS staff propopsal a cautious endorsement. "It's a step in the right direction," said Dean Preston, executive director of San Francisco advocacy group Tenants Together. But he said he believes the proposal could go further. For instance, it only affects multi-family housing. In East Palo Alto, CalPERS invested in a huge cluster of single-family rental homes.

In New York and East Palo Alto, the plan was to liberate the units from the rent controls. Generally, rent-control units become free-market when a new tenant moves in, and existing tenants were complaining they were being harrassed and illegally evicted.

CalSTRS is working on a similar prohibition but hasn't yet enacted it, according to staff memos circulated last week. The new policy "will make clear our desire to not invest in strategies that are dependent on reducing the affordable housing units," staffers said in a memo to the teachers' fund's investment committee. 

We know that California's manufacturing sector took a pounding when Toyota's NUMMI plant shut down at the end of March. But there's evidence that all is not lost in this industry.

A survey of purchasing managers by Orange County's Chapman University suggests the factory sector is recovering. The survey's composite index, which takes in inventory, production, employment and other factors, clocked in at 62.0 for the second quarter. That's the highest level since the end of 2005.

The figures are in line with national surveys showing manufacturing activity picking up.

Sacramento's Pacific Ethanol Inc., which is trying to bring its production plants out of bankruptcy, reported a huge fourth-quarter loss. But the numbers indicated the company made some progress.

In results released late Wednesday, the company said it lost $245.6 million in the quarter, but that was largely driven by a $250.2 million non-cash loss to reflect a write-down of its bankrupt production plants.

Otherwise, the company reported a "gross profit" of $1.4 million, vs. a loss of $29.2 million a year earlier. The progress came even though sales fell in almost in half, to $87.9 million from $160.4 million.

Pacific Ethanol put its four company-owned plants into Chapter 11 bankruptcy last spring after the bottom dropped out of the ethanol market.

Earlier this week, it released a reorganization plan that would surrender ownership of the plants to lenders. The company would retain plant-management and marketing contracts, and would keep a share of the profits from the facilities.

Shareholders responded negatively to the plan, driving the stock price down. But they welcomed the earnings report. The company's stock rose 29 cents to $1.40 in morning Nasdaq trading.

Sacramento-based Pacific  Ethanol Inc.'s production plants would be surrendered to the company's lenders under a bankruptcy reorganization plan announced today.

The plan will dramatically restructure about $293 million in debt.

Shareholders responded by selling Pacific Ethanol stock in droves - the price fell 82 cents to $1.17 on the Nasdaq market.

The plan still needs bankruptcy court approval.

The company put its operating plants in Chapter 11 reorganization after the bottom dropped out of the ethanol market.

California has dumped its "cool cars" rule requiring reflective windshields to battle global warming.

The California Air Resources Board dumped the rules last week in response to complaints that the windshield glazing could interfere with such things as cell phone signals and the monitoring of ankle bracelets worn by paroled felons.

The idea, controversial from the beginning, would have cooled cars down with clear glazing, enabling motorists to cut down on their air conditioning. That would have saved fuel and reduced carbon emissions.

The policy was supposed to take effect with cars sold in California in 2012.

Instead, the ARB will require a "performance-based approach" that will require automakers to cool down the interiors of their cars, but are free to do so in any way they please.

The Roseville company planning a solar-panel assembly plant for the Sacramento area has chosen McClellan Park as the site of its first U.S. plant.

Solar Power Inc. said today it wants to build a 100,000-square-foot factory at the North Highlands business park. "The site provides an excellent geographic location for us as we pursue a growing number ofnew business opportunities within California and across the country," said Chairman and Chief Executive Steve Kircher.

The company said it expects to begin construction in July and finish in early 2011. The plant is expected to employ 100 workers when operational.

Solar Power, as previously announced, received nearly $25 million in federal economic stimulus assistance from Sacramento County. As part of the agreeement, the company agreed to build a solar-power plant, plus a solar generating system, somewhere in Sacramento County, and to move its headquarters from Roseville.

The McClellan factory will supplement the company's assembly plant in China.

California incomes fell faster than the national average last year.

The U.S. Bureau of Economic Analysis, in a report late last week, said per-capita personal income fell 3.5 percent last year. The national average was a decline of 2.6 percent.

The numbers provide further evidence that California, with its outsized exposure to the real estate crash, has taken more than its share of lumps from the recession.

Eight states ranked worse than California. Wyoming was worst, with incomes shrinking 5.9 percent.

Second worst was Nevada, a state that loves to poach California businesses but got caught up in the real estate bubble even worse than California. Per capita income in the Silver State fell 5.8 percent.

The top performer was West Virginia, where incomes rose 1.8 percent.

The job losses returned to California in February.

After a promising January in which the state added 25,400 jobs, payrolls fell by 20,400 in February, the Employment Development Department reported today.

The numbers suggest that while the worst is likely over, the job market is still bouncing around the bottom.

The unemployment rate was 12.5 percent in February, unchanged from the month before.

Sacramento area unemployment fell three-tenths of a point, to 12.8 percent, although the region lost 1,200 jobs during the month.

The Sacramento construction sector lost 1,500 more jobs even though hiring normally perks up slightly in February. Statewide, the construction industry lost 21,500 jobs, more than any other industrial sector.

 Analysts said the results were discouraging. "Not much progress on this one," said Howard Roth, the chief economist at the state Department of Finance.

The state is "treading water, as is the nation," said Stephen Levy of the Center for Continuing Study of the California Economy.

GenCorp Inc., the parent of Aerojet, reported a first quarter loss today despite higher revenue.

The Rancho Cordova aerospace company said it lost $8.9 million in the first quarter, or 15 cents a share, vs. profits of $19.4 million a year earlier. The difference was one-time adjustments, including higher non-cash retirement costs.

Revenue increased 9 percent to $186.8 million because of "numerous space and defense programs," the company said.

GenCorp shares rose 16 cents to $4.79 in morning trading on the New York Stock Exchange.

The legendary but troubled casino at the Cal Neva resort is closing for the time being.

Canyon Capital Realty Advisors, the Los Angeles investment firm that took over the Cal Neva in foreclosure proceedings, said today it will shut the tiny casino March 31.

But it added that it's in discussions with several gaming operators who are interested in reopening the casino by year's end.

During the interim, the hotel and other facilities will stay open. Canyon has installed new management and says business is starting to improve; wedding bookings have jumped 300 percent in the past year.

"We have worked hard to successfully stabilize business operations over the past year, and we are confident that an operator shift at the casino will only further enhance the value of the Cal Neva resort," said Canyon executive Richard Bosworth in a press release.

The Lake Tahoe resort is probably best known for one reason: It was owned by Frank Sinatra in the early 1960s.

The company that manages Red Hawk Casino said the Shingle Springs venue continues to perform below forecast.

Lakes Entertainment Inc. of Minneapolis said the "uncertain economic environment continues to impact this property's ability to achieve consistently strong results." It said it has made numerous changes in the operations "because operating results did not meet our expectations."

Although it didn't break out specific financial results for Red Hawk, it said a decline in fees from Shingle Springs led to a decline in company-wide revenue, to $5.3 million from $5.5 million the year before. Lakes operates a total of three casinos.

The casino, owned by the Shingle Springs Band of Miwok Indians, has already trimmed employment to about 1,500 full-time equivalent from 1.750 since it opened in late 2008. As previously reported, Lakes installed a new general manager last month. In its announcement today, Lakes added that "many of the senior management positions at the property have either been eliminated or replaced."

A big CalPERS real estate investment in Boston has gone by the wayside, according to reports in the Boston media today.

Meanwhile, a major CalSTRS investment in New York real estate is in danger of going into default.

The CalPERS project consumed more than $120 million before developers gave up.

CalPERS' share was $91 million, according to Steve Sugerman, a spokesman for Wilson Meany Sullivan, a San Francisco development firm that was brought in last fall to evaluate the project for CalPERS.

The demise of Columbus Center, a mixed-use project to be built over the Massachusetts Turnpike in the heart of Boston, is the latest in a string of real estate failures to hit the California Public Employees' Retirement System.

The Boston project has been in trouble for years. State officials served CalPERS and its partners with a default notice a month ago, signaling the end was near.

Separately, the credit rating service Fitch Ratings issued a warning today of "imminent default" on a $400 million New York skyscraper purchased during the real estate boom by the California State Teachers' Retirement System and a New York developer.

CalSTRS and Silverstein owe $325 million on the project, according to Fitch. A CalSTRS spokesman, Ricardo Duran, wasn't immediately available for comment.

Pacific Ethanol Inc. announced a deal today that's designed to erase $34.7 million in debt while handing nearly 10 percent of its stock to a new investor.

The arrangement could represent a step toward pulling the Sacramento ethanol producer's operating subsidiaries out of Chapter 11 bankruptcy.

The investor, Socius CG II Ltd. of Los Angeles, purchased some $5 million of debt held by original lender Lyles United LLC.

Then Socius made a deal with Pacific to cancel the debt in return for the equity stake.

The deal reduces the parent company's debt, said Pacific Chief Executive Neil Koehler. That could help the company lift its production plants out of Chapter 11 bankruptcy, where they've sat since last May.

Eventually, Socius could buy out the rest of Lyles' debt, he said.

Pacific halted production at three of its four plants as prices collapsed and cash ran short. It has since re-started one plant, although its two California facilities, in Stockton and Madera, remain mothballed.

"The ethanol industry has changed positively recently," said Terren Peizer, a financier who heads Socius.

Pacific shares fell to $1.98, down 7 cents, in Nasdaq trading.

California added 32,500 jobs in January, ending a two-month losing streak and providing hope that the economic recovery has arrived. But the figures released today by the state Employment Development Department also show that the recession has been far tougher on California than previously believed.

In its annual recalculation of the health of last year's data, the EDD reported that the state lost 338,000 more jobs than previously reported.

That's a much more dramatic revision than economists were expecting and pushes 2009's total job loss to more than 8000,000 for the state. "The bottom's at an even lower place" than first believed, said economist Jeff Michael of the University of the Pacific.

January's numbers, though, showed some reason for optimism. While the unemployment rate actually rose two-tenths of a point, to 12.5 percent, economists put much more stock in the addition of 32,500 payroll jobs. The payroll number is based on a larger and more reliable survey.

The January figures suggest the state "is scraping the bottom," said economist Sung Won Sohn of California State University's Channel Islands campus in Camarillo.

Howard Roth, the state's chief economist, noted that eight of 11 major sectors of the economy added jobs on a seasonally-adjusted basis, including the troubled construction industry.

Sohn said the Bay Area and coastal Southern California are rebounding nicely, but the Central Valley and Inland Empire are lagging. The pickup in Asia's economy is translating into good news for California's major ports, he added.

Local unemployment figures won't be released until next week, officials said.

Earlier today, U.S. officials released national unemployment figures for February. The national economy lost 36,000 jobs during February, although the impact of the East Coast's blizzards were largely the cause. The national unemployment rate held steady at 9.7 percent.

Four development teams, including some of the area's most prominent developers, have submitted proposals to city officials for remaking the troubled 700 and 800 blocks of K Street in downtown Sacramento.

The proposals themselves will remain secret until March 15, but it's obvious that some radical overhauls could be on the table. One of the developers, Rubicon Partners, has made it clear in the past that it wants to open the K Street pedestrian mall to car traffic.

"The message we have is there's still a lot of interest in the development of K Street," city downtown development manager Leslie Fritzsche told The Bee's Bob Shallit today. "The fact that we have (attracted) such quality teams is significant."

The city has spent $40 million buying properties on K Street. After a hotel development project fell apart in December, the city put out new requests for proposals.

One team includes prominent developer David S. Taylor Interests Inc., which is partnering with Los Angeles real estate powerhouse CIM Group. CIM owns several properties in Sacramento already. Retailer Joe Zieden, who was originally going to redevelop the 700 block but got bogged down when his furniture store chain went into Chapter 11, is part of the Taylor team. So is Domus Development of the Bay Area.

The Rubicon team, which developed The Citizen Hotel, is partnering with St. Anton Partners and Joie de Vivre Hospitality, which operates The Citizen.

D&S Development, which was responsible for the housing and retail complex at 14th and R streets, is partnering with CFY Development, which created the Globe Mills senior housing project and a Stockton hotel.

Bridge Housing, an affordable-housing firm from San Francisco, is teaming with Bagatelos Development and Saca Development. Saca's most recent venture was the failed attempt to build twin condo towers on Capitol Mall.

The head of BlackRock Inc., a huge money-management firm that counts CalPERS among its clients, has a few interesting things to say in the current Vanity Fair magazine.

One of Laurence Fink's big regrets is a disastrous New York real estate investment called Stuyvesant Town that cost CalPERS some $500 million (CalSTRS lost $100 million on the deal, too.

Here's an excerpt:

The Stuyvesant Town loss was "an embarrassment," he says. Then his voice drops to a whisper. "I mean, my mother gets her pension from calpers." The Stuyvesant Town loss was "an embarrassment," he says. Then his voice drops to a whisper. "I mean, my mother gets her pension from Calpers."

The entire story can be found here.

It's nearly the end of February and we don't have the January state and local unemployment statistics yet. What gives?

Relax. It's the time of year when the Employment Development Department goes through its revisions of the prior year's figures. That means things get delayed a bit.

The January figures are scheduled to be released March 5. The February numbers will come out three weeks later.

For the record, Sacramento's unemployment rate for December was 12.3 percent; the statewide rate was 12.4 percent.

The long-delayed Elk Grove Promenade Mall would be spun off to a new company under a tentative and complicated investment plan announced today by the mall's bankrupt developer, General Growth Properties Inc.

The stalled Elk Grove site and 44 other properties described by General Growth as "non or low-income producing, high long-term potential assets" would become part of a new company called General Growth Opportunities.

Other properties would remain part of the old General Growth.

General Growth announced it agreed to a $2.63 billion equity infusion by Canadian real estate firm Brookfield Asset Management Inc. Other suitors could outbid Brookfield, and the entire deal is subject to approval of the bankruptcy judge.

As part of the deal, the developer's existing shareholders would get stock in both the "old" and "new" General Growth companies.

Thomas Nolan, General Growth's president, said in a press release that the new General Growth Opportunities would have "a large portfolio of opportunistic assets that have substantial long-term value."

Construction halted on the Elk Grove mall in late 2008. The company went bankrupt a few months later.

An assemblyman has introduced legislation aimed at preventing the state's two big public pension funds from investing in so-called "predatory" schemes that displace rent-control tenants.

The bill is AB 2337 by Assemblyman Tom Ammiano, D-San Francisco. It's in response to a couple of controversial investments, one in New York and one in East Palo Alto, that were predicated on converting thousands of rent-controlled apartments and houses into market-rate units by moving new tenants in.

CalPERS invested a total of $600 million in the two deals, CalSTRS put $100 million into the New York deal.

Both deals went bust when the market soured, but not before generating lots of controversy and litigation over how rent-control tenants were being treated. Tenants rights advocates say the landlords harrassed longstanding tenants to get them to leave.

Generally speaking, a rent-control unit can be decontrolled when a new tenant moves in.

 The investments were the subject of a lengthy piece in The Bee last November.

A CalSTRS spokesman, Ricardo Duran, said the teachers' fund's legislative committee hasn't yet reviewed the legislation. A spokesman for CalPERS, Brad Pacheco, said the fund will study the bill.

Vacancies continue to inch up in Sacramento's commercial real estate sector, but there are signs of improvement.

The vacancy rate rose to 12.9 percent at year end, up slightly from 12.7 percent at the end of the third quarter, according to a report by Colliers International real estate.

But the fourth quarter witnessed "a surge of leasing activity for vacant big box space," said the report by Colliers research director Garrick Brown. He noted that much of the space vacated by defunct retailers Mervyns and Gottschalks has been taken or is about to be taken.

On the other hand, much of the vacant Circuit City space is still available. And many of the new tenants are paying considerably less than the previous occupants.

Read the full Colliers report here.

General Growth Properties Inc., the bankrupt developer of the stalled Elk Grove Promenade mall, received a takeover bid today.

The $10 billion bid was made by Simon Property Group, a rival mall developer from Indianapolis.

If accepted, the bid would enable General Growth to emerge from Chapter 11 bankruptcy. Simon would pay $7 billion to creditors and $3 billion to shareholders.

There was no immediate word on what the bid might mean for the Promenade site. Because of weak market conditions, real estate analysts in the Sacramento area believe it will be several years before the mall gets built, regardless of what happens to General Growth.

Construction on the Promenade, an open-air mega-mall off Highway 99 in Elk Grove, was halted in late 2008. General Growth, based in Chicago, filed for Chapter 11 a few months later.

Simon made a hostile or unsolicited takeover bid, saying it made a friendly overture to General Growth more than a week ago but had yet to receive a "substantive response." The Indianapolis developer said its offer has the support of the official bankruptcy committee representing General Growth's unsecured creditors.

Red Hawk Casino, which has struggled to meet expectations since opening in late 2008, named a new general manager today.

Tracy Mimno, who was chief executive at the Peppermill Casino in Reno, will take over at Red Hawk in March, pending approval from gaming regulators.

Mimno replaces Peter Fordham, who resigned in October following a difficult first year. Within a few months of opening, the Shingle Springs casino cut staffing to around 1,500 full-time equivalent employees, a loss of 250 jobs, mainly through attrition. Other Sacramento area casinos have also cut employment s the casino industry has suffered through the recession.

Executives with Lakes Entertainment Inc., the Minnesota company that manages Red Hawk, have said traffic is strong but customers aren't spending as much money as forecast.

Since Fordham's resignation, the Shingle Springs casino has been run by assistant general manager Terry Contreras, who will continue in that role.

"Tracy had tremendous success during her tenure" at Peppermill, said Lakes Chief Financial Officer Tim Cope in a press release. She was CEO of the Reno casino since 1997.

Red Hawk is owned by the Shingle Springs Band of Miwok Indians.

Homebuilding will generate $20.38 billion worth of economic activity in California this year, a new study out today says.

That's a significant increase from last year but still a pittance compared to 2005, when the housing market was in full bloom.

The study by Sacramento's Center for Strategic Economic Research says California homebuilding, even in its weakened state, remains a significant contributor to the state's economy. The study was funded by the industry-supported California Homebuilding Foundation.

According to the study, homebuilding meant $67.7 billion to the economy in 2005. Its economic impact fell to a mere $14.34 billion last year but will perk up somewhat this year as permitting and construction improve.

Propel Fuels, a Sacramento company that operates alternative-fuels filling stations, received $12 million in new equity funding, it was announced today.

The funding was announced by Craton Equity Partners, a Los Angeles investment firm that specializes in green-tech deals. Craton contributed $8 million toward the funding. The rest came from Nth Power and @Ventures.

Propel owns and operates 11 filling stations in Sacramento and Seattle dedicated to low-carbon fuels.

Numonyx, the Swiss computer chip company with North American headquarters in Folsom, is being taken over.

Numonyx said today it's being sold to Micron Technology Inc., an Idaho chipmaker, for $1.27 billion in stock.

A spinoff of Intel Corp., Numonyx employs 450 workers in Folsom.

Numonyx spokesman Mark Miller said it's too soon to say what will happen to the Folsom operation but added that Micron was particularly interested in the wireless and mobile chip technology that's developed in Folsom.

"Those people have the skillset that made Numonyx interesting to Micron in the first place," he said.

Layoffs in California are tailing off, a new survey shows.

The California Employment Indicator Index, compiled by Orange County's Chapman University, rose sharply this quarter to 81.6. That compared with a reading of 72.3 for the fourth quarter of 2009.

But that doesn't mean employment is rebounding. When the index is below 100, employers are still retrenching rather than hiring. They're just doing it more slowly than before.

Job growth probably won't return to California until midyear, the survey suggests.

The results are consistent with the official state unemployment statistics from the past few months. Those numbers show that employers are still cutting jobs but at a slower pace than a year ago. 

GenCorp Inc., the Rancho Cordova owner of Aerojet, reported improved fourth quarter earnings and revenue today.

The company said it earned $15 million, or 24 cents a share. That compared with a year-earlier loss of $5.7 million, or 10 cents a share, when GenCorp took one-time charges because of its decision to freeze its pension plan.

Revenue grew to $240.1 million from $198.5 million the year before, thanks to higher sales in its Orion and Standard Missile programs.

Yes, the economy still feels awfully dreary around here. Some economists believe California is still in a recession, and will be stuck for another few months, even if the national recession probably ended last summer or fall.

With that, it's worth noting that the national Gross Domestic Product figures are out today for the fourth quarter of 2009, and they're pretty smashing: 5.7 percent annualized growth rate.

Here's some instant analysis from an email from California economist Sung Won Sohn, of CSU's Channel Islands campus:

The good news is that the recession has ended around mid-year and the economy has begun to expand during the second half of the year. Most of the sectors has contributed to economic growth during the quarter. Final sales have increased from the second quarter.

The not-so-good news is that most of the growth came from temporary factors such as inventories and government stimulus which can't be sustained.

Consumers are doing their part in this economic recovery. The "cash for clunkers" program has boosted spending temporarily. Nevertheless, consumers seem to feel better about the future of the economy. The employment market is the main problem facing consumers and the economy. However, the job market is in the process of stabilizing with the unemployment rate topping sometime during the first half of 2010.

Capital spending has been another source of economic positivs. In this report, the spending for equipment and software has risen as businesses try to raise output by raising  productivity. The Achilles' heel of this sector is commercial construction, a lagging indicator.  Offices, apartments, warehouses, etc. will lag the overall economy by as much as a year or more in recovery.

As expected, housing continues to be a drag on economic growth even though we expect bottoming out sometime during the first half of the year. Net exports were another positive to economic growth during the quarter.

Sales of new cars plummeted in California last year, falling at a rate that was worse than the U.S. average.

The statewide decline was 28.3 percent, according to a report today by the California New Car Dealers Association.

By contrast, U.S. sales fell 21.2 percent.

The association's report did offer some encouraging news. The decline in California was a horrific 39.6 percent in the first six months of 2009 but slowed to a relatively modest 13.7 percent during the second half of the year.

In addition, the association said it believes 2010 sales will increase.

Still, there was no doubt it was a bad year for car dealers. Sales fell to their lowest level in California since 1975, the association said. Total sales of 1.04 million were just half what they were four years ago.

Our colleague Mark Glover will have a more complete report in Friday's paper.

A Pennsylvania company said today it's opening a data center in Rancho Cordova.

The announcement was made by SunGard Availability Services of Wayne, Pa. The facility spans 69,000 square feet.

The center will provide network, hosting and other services and is being marketed as an earthquake-safe location for Bay Area companies.

CalPERS' $500 million investment in New York real estate has officially gone by the wayside.

A massive Manhattan apartment complex, partially owned by CalPERS, is being abandoned to its creditors after defaulting on a $4.4 billion mortgage.

The investment had been on the ropes for months.

CalPERS was among the high profile investors that went in on the 2006 deal to buy the Peter Cooper Village and Stuyvesant Town apartment complex for $5.4 billion, the costliest residential real estate deal in U.S. history.

CalSTRS wrote off its $100 million investment in the project months ago.

 CalPERS spokesman Clark McKinley said today that his pension fund has written off its $500 million investment.

The deal was masterminded by Tishman Speyer Properties and BlackRock Inc., both of New York. "It has become clear to us through this process that the only viable alternative to bankruptcy would be to transfer control and operation of the property, in an orderly manner, to the lenders and their representatives," Tishman and BlackRock said in a statement to the Wall Street Journal.

The deal was controversial because the complex has long been a middle-class haven in pricey Manhattan, and investors hoped to increase cash flows by liberating the units from New York's rent-control laws. That strategy imploded and a New York court ruled that the partnership had illegally raised rents. 

The job losses returned to California in a significant way last month. Some 38,800 payroll jobs disappeared, according to figures released today by the state Employment Development Department.

The state's unemployment rate clocked in at 12.4 percent for December. That was unchanged from the revised November figure.

Analysts had been hoping that the job losses in California had mostly run their course.

Sacramento area unemployment fell two-tenths of a point from November's revised figure. The rate for December was 12.3 percent, even though the region lost 3,700 jobs during the month.

In the past 12 months, the state has lost 579,400 jobs. The region has lost 40,900.

In the Sacramento area, state government shed 1,500 jobs, construction fell by 1,300 and the leisure and hospitality sector cut 900 jobs.

<b>More unemployment information</b>

<a href='http://www.sacbee.com/1232/rich_media/1698037.html' target='_blank'>Updated interactive California unemployment map</a>

Unemployment's high enough as it is. Friday we'll find out whether it's going to go higher.

The Employment Development Department will release the state and local unemployment figures for December sometime Friday morning.

We're not in the prediction business at Home Front, unless we're talking about baseball, but I will say this: A key stat is likely to be the retail sector. The November numbers were pretty drab in large part because of weak hiring by retailers for the holidays. If the hiring didn't pick up significantly during December, then the overall employment statistics will probably be pretty crummy.

For the record, unemployment statewide was 12.3 percent in November. It was 12.4 percent in the Sacramento area.

We'll start posting numbers and analysis on The Bee's home page as soon as we get em.

A new forecast says Sacramento's unemployment rate will hit 13.5 percent early this year.

The rate was 12.4 percent in November, the most recent data available.

At the same time, the forecast calls for brighter skies. The Sacramento Business Review, published by CSUS' College of Business Administration and the CFA Society of Sacramento, says the economy is looking better this year than last year. But job losses will continue.

"We forecast that the unemployment rate in the Sacramento region will reach 13.5 percent in early 2010 with an improvement in the employment picture unlikely until later in the year," said co-author Sanjay Varshney, dean of the business school. "Even then, we expect the unemployment rate in the region to remain elevated through 2012."

The forecast echoes other predictions that Sacramento will lag the rest of the country in coming out of the recession.

During the week before New Year's, a notoriously slow time for news, two UC Davis professors caused an international media sensation. They released a study saying the Tiger Woods scandal cost his corporate sponsors' stocks to drop a combined $12 billion in the weeks after the scandal hit the news. (You can find our story on the study by clicking here.)

Now the study is getting picked apart. Notably, a column by Carl Bialik, the Wall Street Journal's "Numbers Guy," takes issue with the professors' methodology and findings. Here's a link to his column, which ran in Thursday's Journal.

Bialik wrote that it's practically impossible to blame a specific event for the fluctuation in a stock.

Among his concerns: The study overlooked the fact that one of Woods' sponsors - PepsiCo, which owns Gatorade - issued a negative profit and revenue forecast a couple of weeks after the Woods scandal broke. Bialik argues that PepsiCo's forecast may have skewed the entire results. 

Interestingly, the professors, Victor Stango and Chris Knittel, quietly released a revised version of the study earlier this week in which they mention the PepsiCo forecast and make a few other clarifications. But they say the PepsiCo forecast doesn't undermine their central thesis. We should point out that the new study was released before the Journal published its column.

You can find the new Stango-Knittel study here.

California's troubled factories could be ripe for a comeback.

A survey of factory purchasing managers by Orange County's Chapman University, released today, suggests the state's manufacturing sector will ramp up sharply this quarter.

Chapman's Anderson Center for Economic Research said its index of factory managers' confidence rose to its highest level in four years.

A comeback would be welcome. California's factories have laid off 114,000 workers in the past year, according to the Employment Development Department. That's an 8 percent decline. It doesn't include the more than 4,500 jobs that will disappear when the NUMMI auto factory in Fremont closes this spring - the state's biggest mass layoff of the recession.

A $108 million Oregon office building that CalPERS lost to foreclosure has been sold.

CalPERS and an investment partner purchased the KOIN Center, a Portland office tower, for $108 million in June 2007. The partnership lost the building this summer after defaulting on a $70 million mortgage.

At the time, CalPERS said it was better to walk away from the investment instead of pouring more money in. "The partnership...didn't believe a capital investment was appropriate," the fund said.

Although the building didn't go into into foreclosure, it was taken over by lender New York Life. The insurer has now sold it to American Pacific International Capital Inc. Gene Grant, a lawyer for American Pacific, said the purchase price was in the range of $50 million to $60 million.

The Portland deal is one of many real estate investments that have soured in the past year for the California Public Employees' Retirement System, which has lost billions in real estate.

Spokesman Clark McKinley said CalPERS would have no comment on the sale of the Portland building.

Jackson Rancheria casino laid off approximately 115 workers today.

The casino's chief executive Rich Hoffman said the layoffs are due to the sagging economy. The casino had eliminated about 100 jobs in the past year through attrition but "we finally got to the point where we needed to do these layoffs," he said.

The layoffs represent about 6 percent of the casino's workforce.

Hoffman said business is down about 10 percent from a year ago.

Most casinos have downsized as the economy weakened; layoffs hit Thunder Valley near Lincoln in the spring, while Red Hawk Casino in Shingle Springs has eliminated more than 250 jobs through attrition since opening a year ago.

California's unemployment rate fell two-tenths of a percentage point last month, to 12.3 percent. But the state lost 10,200 payroll jobs, resuming a discouraging trend after a one-month holiday, according to figures released today by the Employment Development Department.

Analysts said the numbers suggest the economy is bottoming out - but is doing so slowly.

In October the state actually gained 31,100 jobs, the first monthly increase since April 2008. But economists cautioned that the job losses weren't over and there might have been some glitches in the November data - even though they generally put more faith in the payroll statistics than in the unemployment rate. The unemployment rate is calculated from a much smaller survey.

The November numbers, showing a resumption of job cuts, seemed to validate those warnings.

Sacramento unemployment was reported at 12.4 percent. That was unchanged from the October rate, which was revised. During the month, some 1,500 jobs disappeared in the Sacramento region.

Construction fell by 2,100 jobs - nearly twice as much as usual for November. And retailers added a mere 2,100 jobs, a much lower than usual for the month, said EDD labor market consultant Justin Wehner.

"You can see rays of hope in the California reoprt, but it's not really here in Sacramento," said economist Jeff Michael, director of business forecasting at the University of the Pacific.

Michael Bernick, former EDD director, said the drop in California's unemployment rate had more to do with Californians dropping out of the labor force, either because they're discouraged or they're seeking new job training. Once they drop out of the labor force, they're no longer counted among the unemployed.

Although there are encouraging signs on the job front, "we're not out of the woods yet," Bernick said.

At 12.3 percent, California was tied with Nevada and South Carolina for the third highest unemployment rate. Michigan had the worst unemployment at 14.7 percent and Rhode Island was second at 12.7 percent

The Kings are worth $305 million, down 13 percent from a year earlier, according to Forbes magazine.

Forbes estimated the market value of every NBA team. The Kings came in 22nd out of 30 franchises.

The magazine said the Kings recorded an operating loss of $2.8 million during the last NBA season on revenue of $109 million.

The most valuable franchise: the Lakers, at $607 million. The Milwaukee Bucks, worth a mere $254 million, were ranked last.

The Kings were one of 20 franchises whose value declined in the past year, Forbes said, citing the bad economy. Earlier this year the Kings imposed layoffs and made other cost-cutting moves; they also were among a group of franchises that borrowed money under a line of credit arranged by the league. Co-owner Joe Maloof recently told The Bee the team is now operating at close to break even. 

The Wall Street Journal today offers this look at Page Mill Properties, a troubled housing project in East Palo Alto in which CalPERS invested $100 million.

The Journal's story says local officials are blaming problems at Page Mill's rental properties for a new crime wave in East Palo Alto, although the story acknowledges that a lousy economy is playing a role as well.

We served up our take on the Page Mill situation with this story a month ago. We noted that CalPERS is in danger of losing a total of $600 million - $100 million in East Palo Alto and $500 million on a New York apartment complex. In both cases, landlords planned to convert rent-controlled units into free-market apartments, driving up income. The plan fell apart in both cities and exposed CalPERS to criticism that it shouldn't have invested in deals that took advantage of working-class and middle-class tenants. CalPERS defended the deals.

Californians are feeling better about the economy. But there's still a lot of pessimism.

Consumer confidence in California has risen to its highest level since the third quarter of 2007, according to a survey released today by Chapman University in Orange County.

The California Composite Index of Consumer Confidence, created by the university's Anderson Center for Economic Research, hit 76.3. That was up from 69.2 in the third quarter.

These numbers don't exactly scream "Eureka," however. The university notes that any level below 100 means there are more pessimists than optimists among Californians.

The developer of Elk Grove's unfinished regional shopping mall took a big step toward exiting bankruptcy today, but the Elk Grove project remains in limbo.

General Growth Properties Inc. said today it reached agreement with lenders on more than 90 malls, part of a bankruptcy reorganization plan that would keep the Chicago mall developer largely intact. But the agreement didn't cover unfinished projects such as the Elk Grove Promenade, said company spokesman Jim Graham.

The company halted construction on the Promenade in October 2008; in February it said the project was on hold indefinitely. Contractor lawsuits started piling up. The company tried selling the mall site to investors but pulled it off the market several months ago.

Market analysts believe the mall won't get completed for several years, regardless of what happens to General Growth.

Graham said the fate of Elk Grove's mall is "subject to market conditions that are unrelated to the bankruptcy."

Crushed by billions in debts, General Growth filed for Chapter 11 bankruptcy last April.  

Cyber Monday, the Internet's answer to Black Friday, turned out pretty well.

Market research firm comScore said today that Cyber Monday sales rose 5 percent to $887 million. That matched the single richest day in online spending history, last Dec. 9.

And it wasn't just a one-day splurge. For the first 30 days of the holiday season, comScore says, online shopping was up 3 percent, to $12.26 billion.

Which raises two questions: Are consumers starting to come out of their bunkers? And, more importantly: The holiday shopping season is 30 days old already? Shows how much I know.

We're plowing through Cyber Monday - the day when online retailers push their biggest deals of the holiday season - so what better time to assess the retailing results so far?

The early returns suggest it's going to be a so-so season. Although the shoppers came out in healthy numbers last Friday, the actual spending wasn't so terrific. Which is about what you might expect as the nation just begins to claw its way out of a terrible recession.

The AP offers this report on how the retailing season is shaping up.

And, in case you missed it, here's The Bee's story from last Saturday's paper on the shopping scene in the Sacramento area: http://www.sacbee.com/business/story/2354384.html

California unemployment increased to 12.5 percent last month, but the state actually added jobs for the first time in more than a year.

The Employment Development Department today said California payrolls grew by 25,700 in October, the first job growth the state has seen since April 2008. California was one of 28 states recording job growth, according to federal officials.

The unemployment rate grew three-tenths of a percent, to 12.5 percent.

It's not unusual for the payroll statistics and unemployment rate to provide mixed signals. Economists generally look at the payroll numbers, which are derived from a broader survey, as a more reliable indicator of the health of the job market.

In the Sacramento area, unemployment increased to 12.3 percent, a four-tenths of a percent increase from September. The region lost 3,600 jobs.

A key reason was the leisure and hospitality sector - everything from restaurants to hotels to theater companies - shedding 1,900 jobs. Normally that sector cuts back around 1,200 jobs in October.

State government added 600 jobs in the region as university instructors went back on payrolls. But normally the start of the school year translates into 1,300 more jobs.

Justin Wehner, a labor market consultant at EDD, said the Sacramento region is suffering worse than many other parts of California because of continued downsizing in construction. That sector has lost 12,700 jobs in the past year.

Unemployment in Sacramento is "the highest it's ever been since 1990 and it's still going higher," he said. "Definitely no daylight at this point."

There was disagreement about the significance of the gain in jobs statewide. Howard Roth, chief economist at the state Department of Finance, said "I think it's going to turn out to be the start of something."

Others noted, however, that the EDD job-loss figures for September were worse than originally believed. The new estimate is that California lost 66,400 that month, a loss of 27,100 additional jobs.

The two months taken together mean "we're going sideways right now," said Jeff Michael, director of business forecasting at the University of the Pacific. "I'm not sure this is the bottom quite yet, but I think we're getting close."

Stephen Levy, an economic consultant in Palo Alto, added, "I think this is a false signal to say this is the beginning of a sustained period of growth (but) we're nearing the end of the job losses." 

Wells Fargo today agreed to a $1.4 billion settlement with state officials over a securities sale that was branded "false and deceptive" by Attorney General Jerry Brown.

Under the settlement, the big San Francisco bank will repurchase $1.4 billion in so-called auction-rate securities from thousands of customers. About half the money, or $700 million, will go to Californians.

According to Brown, Wells had marketed the securities as safe and highly liquid. When the market froze in early 2008, customers were unable to cash them in, he said. Brown sued Wells in April.

"Wells Fargo convinced thousands of investors to purchase auction-rate securities with promises of robust returns and liquidity, but when the market collapsed, investors were left out in the cold," he said in a press release today. "Based on misleading advice, investors bought these risky securities. Now, retail investors and small businesses are finally getting their money back."

There was some disagreement about the size of the settlement. The North American Securities Administrators Association said Wells Fargo is returning about $1.3 billion to investors.

The association said Wells made settlements six states besides California: Georgia, Missouri, Oregon, Texas, Utah and Washington state. It said the settlements stemmed from an investigation led by Washington state's Department of Financial Institutions.

Wells isn't the first institution to refund money over the collapse of the auction-rate securities market. UBS, Citigroup and others have entered into settlements; the securities administrators association pegged the total settlements at more than $61 billion.

Wells didn't admit any wrongdoing in the settlement.

A spokesman for the bank couldn't be immediately reached for comment.

The twice-a-year dance over workers' compensation insurance premiums is under way again. Earlier today, Insurance Commissioner Steve Poizner rejected the industry's call for a 22.8 percent increase in premiums effective Jan. 1.

"Any increase in costs for employers will only make our already dire economic situation worse," he said in a press release. "Given these harsh economic realities, I refuse to rubber stamp double digit increases." He said insurers can do more to rein in costs.

The commissioner's findings are advisory. So is the 22.8 percent recommendation of the Workers' Compensation Insurance Rating Bureau, an industry-controlled group. If the past is any guide, most insurers will raise rates but not as much as the rating bureau recommends.

The Red Hawk Casino at Shingle Springs continues to produce disappointing results.

The company that manages the casino, Lakes Entertainment Inc., said today that Red Hawk's revenue is still being hampered by the weak economy. The disclosure came as the company announced third quarter earnings.

Red Hawk's employment has been trimmed from 1,750 to fewer than 1,500 full-time equivalents since the casino opened last December.

"The uncertain economic environment in the California market continues to impact the Red Hawk Casino's ability to achieve strong opeating results," Lakes Chief Executive Lyle Berman said in a press release.

"We remain diligent in streamlining processes and making constructive changes at this property and we are cautiously optimistic that these enhancements as well as potential improvements in the general economic environment will positively influence the long-term operating results of this property."

Lakes said it earned $2.3 million, or 9 cents a share, during the quarter. That compared with a loss of $5.7 million, or 23 cents. Revenue fell to $6.6 million from $8.4 million.

The company's shares were up 67 cents, to $3.51, in morning trading on the Nasdaq market.

Hi again. Sorry I've been out of touch the past week.

Anyhow, it's time to resume talking about the economy. If you missed it, please read my colleagues Darrell Smith and Mark Glover's story today about the apparent end of the recession.

The story crackles with sarcasm from Sacramentans about how dismal things still feel around here. In short, if this is a recovery, it sure doesn't feel like one.

Of course, it seems all recoveries start out slowly. The recession of the early 90s had been officially over for 20 months when voters tossed the first President Bush out of the White House mostly out of anger over the economy. Similarly, the dot-com recession was over by November 2001, but we spent the next couple of years talking about the "jobless recovery."

So get ready for another slow recovery. Little wonder the stock market did so poorly today, as new economic statistics spread a wave of gloom over Wall Street.

A troubled $500 million CalPERS investment was dealt another serious blow today, courtesy of a major court decision in New York.

The New York Court of Appeals, the state's highest court, ruled that the owners of a big Manhattan apartment complex overcharged tenants by improperly converting their rent-controlled units to free-market prices. The tenants are seeking $215 million in damages.

CalPERS invested $500 million in the mostly rent-controlled Peter Cooper Village and Stuyvesant Town apartment complex in 2006, when the project was sold for an eye-popping $5.4 billion.

 The plan was to convert as many of the units as possible to market-rate apartments, with the idea of jacking up rents. That fell apart when the economy collapsed and tenants began fighting back in court. The apartment complex might soon go into default.

California's other big public pension fund, CalSTRS, has already written off its $100 million investment in the deal.

The New York court ruled that the owners of the apartment complex couldn't raise rents beyond a certain level as long as they were receiving certain tax breaks.

To read the court's decision, click here.

Attorney General Jerry Brown is suing giant Boston investment bank State Street Corp. for more than $200 million, claiming it overcharged CalPERS and CalSTRS on foreign currency trades.

Here's a link to our early-bird story on this case.

Here also is a link to Brown's press release. At the bottom of the press release is a link to the lawsuit itself. 

California and Sacramento's unemployment rates fell last month, even though the state was hit with another discouraging round of job losses.

The statewide unemployment rate fell to 12.2 percent in September, the Employment Development Department said today. That was a tenth of a point below the revised August rate of 12.3 percent.

The state lost 39,300 payroll jobs during September - a disappointing result after a relatively miniscule 7,200 jobs disappeared in August. Many economists say the payroll numbers are more reliable indicators than the unemployment rate, which is based on a smaller survey.

Sacramento's unemployment rate fell to 11.8 percent in September, down two-tenths of a point.

The region added 200 jobs during the month.

The job market got a boost when school started. Some 3,900 jobs were added at area school districts.

But the construction sector lost 1,600 jobs in Sacramento.

Howard Roth, chief economist at the state Department of Finance, called the report "mixed." Job losses are still lower than earlier this year - when 60,000 or more jobs were disappearing per month - but "apparently they're not moderating as much as I thought," he said.

To keep reading this post, click on the "Continue Reading" link below:

Red Hawk Casino, which is off to a disappointing start, has changed general managers.

Peter Fordham has left the casino, according to an announcement by Lakes Entertainment Inc., the Minneapolis company that manages Red Hawk for the Shingle Springs Band of Miwok Indians.

The casino's assistant general manager, Terry Contreras, will run the Shingle Springs casino until a replacement is named.

Since Red Hawk opened in late 2008, Lakes Entertainment has said the financial results have been disappointing. More than 250 full-time equivalent jobs have been eliminated since the opening.

Kyriakos Tsakopoulos has replaced his sister as president of AKT Development Corp., the powerhouse Sacramento real estate firm founded by their father.

The new president, 39, has been with the company for years and has been heavily involved in the family's negotiations with Drexel University, the Philadelphia university that wants to build a West Coast campus on Tsakopoulous-owned land in Placer County.

"I am pleased and the family is happy that Kyriakos has worked his way up the company ranks to this position of leadeship and trust," his father Angelo K. Tsakopoulos said in a press release.

Kyriakos replaces his sister, Eleni Tsakopoulos-Kounalakis, who was nominated by President Obama last week to become U.S. ambassador to Hungary.

Among the bills signed over the weekend by Gov. Arnold Schwarzenegger is a series of new regulations on "placement agents," the marketers at the heart of the bi-coastal inquiry into pension fund corruption.

Schwarzenegger signed AB 1584, which requires placement agents to disclose any campaign contributions they've made to elected board members of public pension funds. It also requires disclosure of whether a money manager has hired placement agents to make a pitch to the pension funds.

The law follows indictments involving placement agents doing business with New York State's public pension fund and disclosures of placement agent activity at CalPERS and CalSTRS.

The law "does do the obvious - it makes that kind of play-to-pay...transparent," said James Hawley, a business professor and pension fund expert at St. Mary's College of California in Moraga.

GenCorp Inc. reported a return to profitability in the third quarter today.

The parent of Aerojet said it earned $12.1 million vs. a $2.7 million loss a year earlier. It earned 20 cents a share, compared to a 5 cent loss last year.

The improvement came as GenCorp said revenue jumped to $201.4 million vs. $172.5 million a year earlier. The increase in revenue was driven largely by growth in its standard missile programs and its Patriot and Atlas V programs.

The company also benefited from lower retirement costs.

The recovery of the US economy seems to be sputtering a bit. The job losses in September reached 263,000, significantly higher than August's and worse than economists had been expecting.

The national unemployment rate ticked up a tenth of a point, to 9.8 percent.

Sung Won Sohn, economist at CSU's Channel Islands campus in Camarillo, called the report "dismal and disappointing" and added, "Technically, the economy may have bottomed but the job market is lagging behind and struggling."

Where does this leave California? The state and local unemployment figures for September won't come out until Oct. 16. The last couple of monthly reports have been encouraging, with job losses totalling a relatively paltry 12,300 in August even though the statewide unemployment rate rose to 12.2 percent.

We saw another glimmer of hope earlier this week, when the state Board of Equalization reported that gasoline usage has ticked back up for the first time in three years.

Look for California unemployment rate to keep climbing. In a forecast released this week, Los Angeles economic consultant Chris Thornberg said the rate will peak at 12.8 percent later this year.

Thornberg, head of Beacon Economics, said the job losses will continue until the second quarter of 2010.

Nevertheless, Thornberg maintains a pretty positive long-term outlook.

"The fundamentals for growth remain strong," he wrote. "Once this cycle has been worked through, not only will growth return, it will return with a vengeance."

In an inkling that the California economy might be turning around, state officials said today that gasoline consumption increased slightly in the second quarter.

It was the first quarterly increase in three years, according to figures released by the state Board of Equalization.

The increase was slight - 0.45 percent - but could be a sign of an improving economy.

Criticized for its recent investment losses, CalPERS is starting a new Web site, www.Calpersresponds.com, to deal with questions and concerns about the pension fund's financial health in the wake of the market meltdown.

"We thought it would be a good time to lay out the issues and put out some clarity," said spokesman Clark McKinley.

CalPERS lost $56 billion in the latest fiscal year. Although the fund has recouped some of its losses in recent months, some elected officials have called its viability into question. The fund has warned that it will impose rate hikes on the state and local governments starting next summer. To tamp down costs, Gov. Arnold Schwarzenegger is urging the Legislature to reduce pension benefits for newly-hired workers.

While much of the rest of the country struggled with almost non-existent economic growth in 2008, the Sacramento region went backwards.

The regional economy shrank by 0.6 percent, when adjusted for inflation, according to figures released today by the U.S. Bureau of Economic Analysis. By contrast, the economy of all U.S. metropolitan areas grew by 0.8 percent.

The numbers provide fresh evidence of the toll of the recession - and the devastating impact of the real estate crash. The big contributors to Sacramento's economic turmoil last year were the financial services and construction sectors, according to the BEA.

When inflation is ignored, Sacramento's economy actually grew by about 1.4 percent, to $93.65 billion. The region's economy was the 32nd largest in the country.

Several other California regions also performed poorly last year, not surprisingly. The Inland Empire's economy fell 1.3 percent in inflation-adjusted dollars. Stockton was down 0.3 percent and Redding fell 2.4 percent. But some regional economies grow, including Fresno's (1 percent) and Chico's (2 percent).

In 2007, Sacramento's economy shrank by 0.3 percent when adjusted for inflation.

The state's unemployment rate rose three-tenths of a point in August, to 12.2 percent, state officials said today.

Sacramento-area unemployment hit 12 percent, up slightly from a revised 11.9 percent the month before, the state Employment Development Department said.

But there was some good news: Payroll jobs fell statewide by only 12,300, suggesting an easing of the recession. That was only one third as many jobs as were lost in July, and the lowest toll in more than a year.

The Sacramento region lost 1,700 jobs during the month, or about one-fourth the job loss recorded in July.

"This moderation (in job loss) looks to me like we're going to have job growth pretty quickly here in California," said Howard Roth, chief economist at the state Department of Finance.

But he added that the August jobs report got a seasonal boost of sorts: With the school year starting so early in many districts, education payrolls swelled more than usual.

And even as layoffs taper off, the unemployment rate will keep going up for a while as Californians resume looking for work, he said.

"I think we're on the road to recovery," said Stephen Levy of the Center for Continuing Study of the California Economy. But he acknowledged that continued job loss, however small, will leave many Californians skeptical that the situation is improving. "There's a reason people don't think the recession is ending," he said.

Michael Bernick, a former director of the EDD, said that although layoffs are slowing, "there's been no uptick in terms of hiring."  

California Attorney General Jerry Brown today said he'll subpoena Wall Street's big rating agencies - Moody's, Standard & Poor's and Fitch - over their alleged role in last fall's financial market meltdown.

Brown's move comes two months after the California Public Employees' Retirement System sued the three agencies in San Francisco Superior Court, blaming them for a $1 billion investment loss.

Brown said the three gave "stellar ratings to shaky assets," including mortgage-backed securities whose collapse helped trigger huge losses in the stock market.

Spokesmen for the three firms weren't immediately available for comment.

The three agencies have come under considerable criticism in the past year over the glowing ratings they assigned to subprime mortgage-backed securities and other risky investments. Earlier this month a federal judge, rejecting arguments by Moody's and S&P, ruled that investors have the right to sue them over their ratings.

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The recession in California will end in the fourth quarter, economist Jeff Michael of the University of the Pacific said today.

But Michael said the recovery won't be swift.

"Although the recession is technically ending, we anticipate a sluggish start to the recovery that will make it feel like a recession in California for another year," Michael said in a prepared statement.

Unemployment, currently 11.9 percent statewide, will peak at 12.6 percent next spring and will remain above 12 percent through all of 2010, he said.

Michael, director of UOP's Business Forecasting Center, said foreclosures and public-sector job losses will continue to hurt the economy over the next year.  

As the housing market continues to show signs of recovery, our crack staff has updated the home-sale database for the Sacramento region.

Check it out at http://www.sacbee.com/homesales/

The figures are updated as of Aug. 19. 

Consumer confidence among Californians remains troublesome despite signs of economic strength on the national level.

After rising sharply in the second quarter, the California Composite Index of Consumer Confidence fell slightly in the third quarter. The quarterly index, compiled by economists at Orange County's Chapman University, was released today.

The index came in at 69.2, down from 70.7 in the prior quarter. Anything below 100 means the pessimists outnumber the optimists.

Still, there are some indications of hope in the Chapman survey: The latest reading is the second-best figure since the fourth quarter of 2007. When consumers were asked about the current state of the economy, the index came in at a dismal 39.6. But when asked about future trends, the index was a much healthier 99.5 - suggesting that many Californians believe the worst is over.

Yet Californians remain in a wait-and-see mode. With regard to near-term consumer spending plans, the index clocked a mediocre 71.7, or slightly below the second quarter.

Up for some heavy-duty reading?

Paul Krugman, the New York Times' Nobel-winning economics columnist, has written this lengthy piece on the long-running debate between free-market thinkers and government interventionists.

Essentially, Krugman is appalled that there's even much of a debate anymore. He believes the events of the past year make it obvious that government intervention in the markets is essential to prop up the economy in troubled times.

In the same vein, but on a much humbler scale, I'd like to refer you to a story I wrote last December about the ascendancy of the "Berkely school" of economic thought at the expense of the "Chicago school" of free-market theory. It was written shortly after UC Berkeley professor Cristina Romer was named chair of the White House Council of Economic Advisors.

Famed contractor C.C. Myers' palatial 8,000-square-foot home in the Sierra foothills was put up for sale this week, in the latest chapter of Myers' financial downfall.

The unfinished home, which he lost to foreclosure, was conceived as as a centerpiece of sorts at Winchester Country Club, the posh residential project developed by Myers.

Winchester went into foreclosure and Myers filed for personal bankruptcy last year.

Real estate agent Matthew Baughman, of Keller Williams Realty in Auburn, listed the home this week for $1.5 million. He said at least $2 million has been spent on the home, and it will take another $1 million to $2 million to finish.

Myers' spokeswoman, Beth Ruyak, said Myers concluded that "it's very expensive for them to finish it. It's economically unfeasible for them to think about living there."

The home includes an underground tunnel connecting the driveway to the garage, plus a media room on the top floor accessible only by elevator. "It's that whole house on steroids thing," Baughman said.

Although the bankruptcy didn't touch his company, bridge and highway contractor C.C. Myers Inc., it is expected that he will lose his 45 percent ownership stake in the company. His workers, through an employee stock ownership plan, are in the process of buying the stake, Ruyak said.

Sacramento's battered tourism industry will get a major shot in the arm starting in 2010. A huge delegation of Jehovah's Witnesses from Northern California will meet in Sacramento for eight weekends a year over the next five years.

It will be the largest convention booking in the city's history and comes at a time when the hospitality industry is struggling.

The booking will bring more than 200,000 delegates to the city over five years, said Mike Testa, spokesman for the Sacramento Convention & Visitors Bureau.

He said the delegates will come on weekends in the summer - traditionally a slow time for Sacramento's hotel industry, which does most of its business during the week.

He said the group will generate $75 million in economic impact during the five years. In addition, the bureau believes the group, based on its experience in other cities, will extend the commitment beyond five years.

The pending closure of the NUMMI auto plant in Fremont is triggering an instant debate on the factors behind Toyota's decision.

The leading suspect, according to business lobbyists, is California's business climate.

The California Manufacturers & Technology Association today released a statement saying the state has been losing factory jobs at an alarming pace, in part because of high taxes and red tape. "These losses cannot be blamed solely on the recession. Our problems started long before the country's mortgage and stock market meltdowns," the association said.

Toyota's thought process may never be fully known. It's clear that the recession had something to do with this. Because of the weak economy, the company is severely plagued with over-capacity, and something had to give. NUMMI became an obvious target for closure when General Motors pulled out of the joint venture that ran the plant with Toyota.

But business lobbyists will no doubt point to the fact that Toyota will continue making NUMMI's products at other plants in North America. The Corolla will be made in Cambridge, Ontario, and the Tacoma pickup will be made in San Antonio, Texas.

As if CalPERS doesn't have enough problems. Now it's fending off a $17.2 million claim by Lehman Brothers, the brokerage firm whose bankruptcy helped trigger the collapse of the stock market.

The dispute is over something called a swap contract, a complicated arrangement in which two parties promise to make payments to each other in the future. Four days after Lehman filed for bankruptcy last September, CalPERS terminated the contract it had with Lehman while still owing the brokerage firm $17.2 million.

Lehman, through its bankruptcy lawyers, is demanding the money. CalPERS acknowledges the debt but doesn't want to pay it. It says Lehman first must pay the $433 million it owes CalPERS.

"It would be unjust to require CalPERS to pay over to (Lehman's) wholly-owned subsidiary $17.1 million (plus interest) when it is owed more than 25 times that amount," CalPERS said in papers filed by Sacramento attorney Steve Felderstein in U.S. Bankruptcy Court in New York.

Toyota Motor Corp. will close the NUMMI auto plant in Fremont next March.

The decision didn't come as a surprise but will prove devastating to the economy of Northern California. The East Bay plant employs 4,500 workers and is responsible for thousands of additional jobs in parts manufacturing and distribution. Thousands of Central Valley jobs will be lost.

"It's a big blow. For the East Bay and northern San Joaquin Valley, it's absolutely huge. An auto plants sends out waves when it closes, not just ripples," said Jeff Michael, an economist at the University of the Pacific.

As many as half the plant's employees commute from the Central Valley.

Toyota's spokeswoman Cindy Knight confirmed to the Associated Press that the plant will close next March.

The plant, formally known as New United Motor Manufacturing Inc., has been a joint venture with General Motors Corp., but its future came into grave doubt after GM dissolved the partnership following its bankruptcy reorganization. The last GM Pontiac Vibe rolled off the assembly line earlier this month, and the plant has continued to build Toyota Coollas and Tacomas there.

State officials, led by Gov. Arnold Schwarzenegger, had mounted a campaign to save the plant by offering tax breaks and other incentives.

California income taxes will get nudged even higher for 2009, thanks to the Consumer Price Index.

New tax brackets prepared by the Franchise Tax Board show that income taxes will rise slightly because of a 1.5 percent decline in the CPI.

 That's in addition to the quarter-point increase in rates enacted by the Legislature in February as part of a deal to close the state's deficit.

Since 1982, tax brackets have been adjusted upward every year to account for inflation. It's a way of preventing Californians from paying higher taxes when their incomes merely keep pace with inflation.

But the system works in reverse, too. Because prices fell, tax brackets will fall, too.

In the 2008 rates, for instance, a single taxpayer had to earn at least $26,821 to reach the 6 percent income tax bracket. This year, the taxpayer will reach that bracket by earning as little as $26,419.

"You could pay the exact same wage in 2009 and pay more taxes," said Perry Ghilarducci, a Sacramento accountant and board member of the California Board of CPAs.

"That's a horrible result," he said.

Of course, there really is no 6 percent bracket anymore; it's now a 6.25 percent bracket because of the Legislature's move in February.

 The new brackets haven't been released yet by the Franchise Tax Board but were published on Spidell's California Taxletter, a private tax-information service based in Anaheim.

California's unemployment rate continued climbing to 11.9 percent last month but there was encouraging news as the pace of job losses moderated. 

The Employment Development Department said the state's unemployment rate jumped three-tenths of a percentage point during the month. The 11.9 percent was the highest posted in the state's modern records, which date to 1976.

But the state lost just 35,800 jobs during the month. That's the smallest loss since last August and may suggest an easing of the downturn. The state has been losing at least 60,000 jobs a month for the past several months.

Sacramento's unemployment rate rose to 11.8 percent, up a tenth of a point from a revised 11.7 percent in June. The region lost 8,000 jobs during the month, with much of the job loss coming in education as summer schedules kicked in. In a year's time, the region has lost 45,700 jobs, or 5.1 percent, and unemployment has risen 4.6 percentage points.

One industry that's gaining jobs in Sacramento: the financial sector, which added 400 jobs due to the uptick in real estate activity. It was only the third time since 2006 that financial services added jobs, said EDD labor market consultant Diane Patterson.

The state numbers suggest "the worst is behind us but we're not out of the woods yet," said Dennis Meyers, an economist at the state Department of Finance.

But there are still many trouble spots. Construction employment fell by nearly 10,000 in California, showing that a turnaround in homebuilding is still a ways off. Single-family housing starts in the Sacramento region fell during the month, according to the California Building Industry Association.

The numbers also suggest a slowdown in the health-care industry, which had been a reliable job creator even as other industries faltered. Kaiser Permanente recently cut 1,850 jobs statewide. "We could always count on (health care) while everything else was going down," said Michael Bernick, a former EDD director and now a senior fellow with the Milken Institute.

California was tied with Oregon for the fourth-highest unemployment rate in the nation. Michigan was No. 1 at 15 percent, followed by Rhode Island (12.7 percent) and Nevada (12.5 percent).

Stephen Levy, who runs the Center for Continuing Study of the California Economy, said in a report that California is still doing "worse than the nation." He added that he saw little hope for optimism in the July numbers.0

 The news came amid further signs of easing of the national recession. The stock market soared after the National Association of Realtors announced better-than-expected home sales for July and Federal Reserve Chairman Ben Bernanke said the economy is about to begin a recovery.

CalPERS filed suit today over Gov. Arnold Schwarzenegger's furlough program, saying its 2,000 employees shouldn't be subjected to the unpaid days off.

The suit, filed in San Francisco Superior Court, says CalPERS employees shouldn't be subjected to furloughs because the savings don't help the general fund. The furloughs are "inhibiting our ability to provide services to our members and to meet our contractual responsibilities to local employers," CalPERS Board President Rob Feckner said in a press release.

He said state law doesn't allow the budget problems to "jeopardize the financial soundness of CalPERS or the benefits that we are obligated to pay retirees."

Most state workers are being forced to take three unpaid furlough days a month as the state tries to conserve cash. The state's constitutional officers have refused to impose furloughs on their employees, setting off a legal battle with Schwarzenegger. Several unions have sued as well, although Schwarzenegger has won all but one of those challenges.

Schwarzenegger's spokesman Aaron McLear said CalPERS "must figure out how to operate more efficiently," like other state agencies. He said it's irrelevant that CalPERS employees aren't paid from the general fund.

This one's in Las Vegas, and I'm bringing it up only because of the Sacramento region's increasing reliance on gaming, and because this case is tied to the Cal Neva at Lake Tahoe.

Canyon Capital Realty Advisors, the Los Angeles investment firm whose executives include ex-Treasurer Phil Angelides, said today it has foreclosed on the Greek Isles casino just off the Vegas Strip. The Greek Isles is the former Debbie Reynolds Hotel and Casino; Canyon Capital and a partner, Spectrum Group Management LLC, loaned $56 million on the property two years ago and began foreclosure proceedings last December.

You may recall that Canyon Capital is trying to unload the Cal Neva after a similar foreclosure earlier this year. The Cal Neva has its own celebrity legacy, of course; the smallish resort at the north end of Tahoe was once owned by Frank Sinatra.

This video, courtesy River City Bank, shows CEO Steve Fleming discussing the commercial real estate market in the Sacramento area.

It's not a happy video. "We built way too many buildings in the good times," he says. "The demand for space has fallen off a cliff."

Enjoy.

The insurance industry called for a 22.8 percent increase in workers' compensation premiums today, earning a quick scolding from Insurance Commissioner Steve Poizner.

Insurers are free to raise rates as they please, and the recommendation by the industry-supported Workers Compensation Insurance Rating Bureau signals that rates are likely to go up again. The new rates would take affect next January.

Rates went up roughly 10 percent last month, although premiums remain far below the 2003 peak, when soaring premiums prompted a legislative overhaul of the system.

Poizner said the industry's recommendation would have a "devastating effect" on small businesses. He said he will scrutinize the recommendation.   

We've written lately about the financial stresses facing Stanley Thomas, the Georgia developer who's overhauling Sacramento's downtown railyard. Because of cash-flow issues, Thomas has been sued by former contractors and partners for millions of dollars. City officials say the project has been hurt by delays in state funding but is generally heading in the right direction.

In the interest of fair play, we provide a link to a story in today's New York Times about the promise the railyard project holds. It's an upbeat story, to say the least, without a hint of the problems the project is facing.

Pacific Ethanol Inc., the Sacramento ethanol maker mired in bankruptcy, reported higher second quarter losses today.

The company, which put most of its operations into Chapter 11 bankruptcy protection in May, said its second quarter loss grew to $27.4 million from $8.3 million a year earlier.

The per-share loss grew to 49 cents from 23 cents.

Revenue fell to $70.1 million from $198 million, the result of lower prices and a steep reduction in output. The company has idled three of its four wholly-owned production plants.

The company that operates Red Hawk Casino says the Shingle Springs casino is still suffering the effects of the down economy nine months after opening.

Lakes Entertainment Inc., in its second quarter earnings report this week, said Red Hawk is getting strong customer traffic but the volume of money spent gambling, particularly on the slot machines, has been disappointing.

Lakes executives said staffing levels are being reduced at Red Hawk, although they wouldn't say by how much. In an interview in May, Lakes Chief Executive Lyle Berman said the number of full-time equivalents had fallen to 1,500 from 1,750 when the casino opened in December.

In an interview today, Lakes Chief Financial Officer Tim Cope said, "We're getting a tremendous amount of guests coming through the doors. It's the 'spend' per customer" that's the problem.

Management fees from Red Hawk did boost the company's second quarter results. The company earned $2.8 million vs. a loss of $5.2 million a year ago.

Sacramentans' earnings were clearly affected by the recession last year, according to figures released today by the U.S. Bureau of Economic Analysis.

Per capita incomes grew by 1.5 percent during the year. That was well below the U.S. average of 2.5 percent. It was also lower than the 2.4 percent inflation rate. Which means Sacramentans lost ground during the year.

A look deeper inside the numbers show that wages went into a serious stagnation in Sacramento. Overall incomes were propped up to a significant degree by so-called government "transfer payments," which include unemployment benefits and so on. Such payments jumped 9 percent in Sacramento last year, pumping an extra $1 billion into the economy.

The numbers, which take into account the entire year, don't really reflect the free-fall that began last fall, when the financial markets collapsed and layoffs began in earnest. "The calamity was in the last quarter of the year," said David Lenze, a BEA economist. "The economy dipped slowly at first and then dropped off after the stock market crashed."

We keep reading (and reporting) that the economy is starting to come out of its nosedive. But it's important to remember that there's still a lot of pain ahead, particularly in the state that was at the forefront of the real estate bubble. A new survey from Orange County's Chapman University released today bears this out.

The university's quarterly California Employment Indicator Index shows more layoffs are coming. Its third quarter index clocked in at 72.1, or slightly worse than the second quarter reading of 73.4.

When the index is 100, that means hiring will cancel out layoffs. Anything below 100 points to further job loss.

The folks at Chapman say job growth won't begin until early next year.

Chapman's survey is in line with other economic forecasts. Sacramento State, for instance, says the Sacramento area unemployment rate will rise to 13.5 percent by mid-2010. It's currently 11.6 percent.

By now you've likely read out colleague Darrell Smith's report in today's paper about Kohl's opening four stores in the Sacramento area next month.

That will provide a nice boost to the job market. It will also help the troubled real estate market, which might be in even rougher shape than the job market. According to the latest quarterly report from Home Front friend Garrick Brown, of Colliers International real estate, the retail vacancy rate in greater Sacramento reached 12.9 percent at the end of June.

That was up from 11.8 percent at the end of the first quarter.

In his analysis, Brown said Kohl's will help stabilize the market in the third quarter, but it won't be the spark of a genuine turnaround. "With unemployment not expected to peak until early next year, we don't see the outlook for retail real estate improving in anything less than two years," he wrote.

Some of the "sub-markets" are doing horribly. Vacancies are at 19 percent in Lincoln, 19.8 percent along Highway 50 and 18.3 percent in the Arden/Howe/Watt area.

The state was sued today over those hundreds of millions of dollars of IOUs it's been issuing since early July.

Nancy Baird, a small-business owner from the San Luis Obispo area, filed a class-action suit against State Controller John Chiang and State Treasurer Bill Lockyer, saying the IOUs are unconstitutional.

The suit, filed in U.S. District Court in San Francisco, demands that the state stop issuing any more IOUs and immediately redeem the notes issued so far. Even though Gov. Arnold Schwarzenegger signed the new budget agreement into law Tuesday, the state has said it will keep issuing the IOUs for the time being because of cash shortages.

Baird says she was stuck with $27,752 in IOUs for embroidered shirts she produced for a California National Guard youth camp.

More than $1.1 billion worth of IOUs have been issued so far to state vendors, taxpayers who are owed refunds, and local governments that use state money to deliver various social services.

Tom Dresslar, a spokesman for Lockyer, said the treasurer understands vendors' frustration but the IOUs are legal. 

Meanwhile, the city of Sacramento said today it has bought $2.5 million worth of IOUs. The city set aside $10 million to buy IOUs from city residents and businesses.

The company that runs Thunder Valley casino filed for bankruptcy protection today.

Station Casinos Inc. of Las Vegas, which has run Thunder Valley since it opened, filed for Chapter 11 protection in U.S. Bankruptcy Court in Reno.

Doug Elmets, a spokesman for Thunder Valley and its owners, the United Auburn Indian Community, said the Lincoln-area casino won't be affected by the bankruptcy.

"Their financial situation has no bearing at all on the success of Thunder Valley," he said.

But the bankruptcy is indicative of the slump hitting the gambling industry. Thunder Valley laid off nearly 100 workers in May, for instance, while Red Hawk Casino in Shingle Springs reduced employment shortly after it opened last December.

It's been repeated so many times (in the Bee an elsewhere) that it's almost an article of faith: California's onerous business climate chases businesses out of the state.

But the Public Policy Institute of California has argued for the past few years that this is mostly a myth. The San Francisco think tank has studies arguing that California's share of the nation's jobs has held fairly stable (at around 11 percent) throughout the years.

A friend of mine in the biotech business says PPIC is overlooking a crucial point: that California's taxes and red tape consistently keep companies from expanding here. His is a tough argument to prove - how do you measure what you never had? - but an interesting thought.

Anyway, I'd like to call your attention to a new PPIC report that looks at California's socio-economic future. It's a bit of a whopper - 42 pages - so you'll be excused if you skim through it. But I have faith that Home Fronters will give it a look.

You can find the report at this link at PPIC's Web site. Happy reading.

New car sales in California fell 42.9 percent in the second quarter compared to a year earlier.

But the California New Car Dealers Association, which compiled the data, said today that rate of decline seems to be easing. The association predicted a 20 percent dip in the second half of 2009, followed by gains in sales in 2010.

"I think we have hit bottom, but it could be a slow climb out," said the association's chairman, Gary Shipman, in a press release. Shipman is a Toyota, Subaru and Mazda dealer in Santa Cruz.

Vehicle sales have now fallen 43.3 percent for the first six months of the year.

CalPERS and a joint venture partner are spending more than $1 billion to buy a big collection of U.S. shopping centers.

The partnership, known as Global Retail Investors, is buying a majority stake in the portfolio from Australia's Macquarie CountryWide Trust. The deal values the shopping centers at a total of $1.73 billion. Four years ago, CalPERS and its partner, Maryland investment firm First Washington Realty Inc., sold essentially the same portfolio of centers to Macquarie for $2.7 billion.

The portfolio spans 17 states and Washington, D.C. It includes 16 shopping centers in California, including two in greater Sacramento: Stanford Ranch Village in Rocklin and Auburn Village in Auburn.

 CalPERS official Ted Eliopoulos called the investment an example "positive opportunities" that come "out of the distress in the marketplace."

Not a big shock here, but the vacancy rate in the Sacramento-area industrial real estate market keeps creeping up.

A report out today by Garrick Brown, research guy at Colliers International real estate, said the vacancy rate rose to 11.5 percent in the second quarter, up from 10.9 percent in the first quarter.

Not a huge leap, and not a huge percentage. But Brown warns that the rate will likely hit 13.5 percent or 14 percent next summer before things get better.

One other thing: Brown says the vacancy rate doesn't tell the whole story. There's also a "shadow vacancy" problem of tenants who are occupying space but not paying rent, he says.

The city of Sacramento is in the IOU business.

The Sacramento City Council voted Tuesday night to purchase up to $10 million worth of California registered warrants from city residents and businesses.

City officials called it a service to the citizenry - and a way to make a little extra cash. The notes will earn a 3.75 percent annualized interest rate, payable Oct. 2.

Mayor Kevin Johnson called the purchase program an "innovative, creative idea."

The program starts Thursday morning. IOU recipients have to present the notes at the city treasurer's office on the third floor of the old City Hall at 915 I St., along with a voided bank check, Social Security number and a photo ID. The "IOU window" will be open from 9 a.m. to noon.

The city will wire the money to recipients' bank accounts.

Unlike some private investors, who are offering 80 to 90 cents on the dollar, the city will pay full face value for the notes.

CalPERS and CalSTRS reported their investment results for the just-ended fiscal year, and the numbers weren't pretty.

The California Public Employees' Retirement System said its portfolio shrank 23.4 percent, a loss of $56.2 billion.

The California State Teachers' Retirement System said its portfolio fell 25 percent, or $43.4 billion.

The results reinforce what's been known for some time: that the two big pension funds took a beating over the last 12 months.

"This result is not a surprise; it is about what we expected given the collapse of the markets across the globe," CalPERS Chief Investment Officer Joseph Dear said in a press release.

CalPERS has said it will demand a higher contribution from state and local governments to shore up its funding position. The higher contribution from the state will start next July and from local governments in 2011, although it isn't known yet how much the fund will demand.

CalSTRS can't demand higher contributions but has begun talking to legislators about that issue.

Employer contributions to CalPERS are based in part on a "funding ratio" that compares assets with pension obligations. The ratio for CalPERS was 92 percent a year ago and has surely fallen below the 80 percent threshold that's considered comfortable. The exact figure won't be known for some time, but CalPERS previously warned that its ratio could fall to 68 percent or so.

CalPERS' investment losses have been public knowledge for months; today's announcement merely marked the end of the fiscal year June 30.

CalPERS' stock portfolio fell 28.5 percent. Its real estate holdings fell 35.8 percent and its private equity holdings dropped 31.4 percent; the real estate and private equity values have been calculated only through March 31.

 CalSTRS said its real estate fell 43 percent, private equity 27 percent and global stocks 28 percent.

Both funds said they've tweaked their portfolio allocations in recent months. Both, for instance, have said they'll put less money into the stock market.

The state's budget problems are trickling down to Sacramento's office market. The state said today it has renegotiated leases on 34 office sites around the state, generating $27 million in savings over the next few years.

Fifteen leases in the Sacramento area were renegotiated, saving a total of $7.3 million. Eric Lamoureux, a spokesman for the state Department of General Services, said the state believes it can renegotiate about 200 leases by the time it's through. The renegotiations are a result of Gov. Arnold Schwarzenegger's executive order last month demanding a 15 percent decrease in spending on state contracts and purchases.

In Sacramento, the major savings will occur at two office buildings, at 1325 J St. and 915 L St.

Here's another possible place to cash those state IOUs: Sacramento City Hall. The City Council is expected to vote Tuesday evening on a proposal to pay 100 cents-on-the-dollar for IOUs held by city residents and businesses located in the city.

This isn't about altruism. City officials believe the IOUs are a terrific short-term investment. The notes will pay the annual equivalent of 3.75 percent interest when they're redeemed by the state Oct. 2.

In the financial markets, "I can't find anything out there that even approaches that," said John Colville, the city's senior investment officer.

The proposal calls for the city to purchase up to $10 million in IOUs using short-term investment cash.

The state has issued hundreds of millions of dollars in IOUs since July 2. It's not known when the the practice will stop, given that legislative leaders are close to making a budget deal with Gov. Arnold Schwarzenegger.

 A fledgling secondary market for IOUs has popped up on the Internet and on Wall Street, with investors offering 80 to 95 cents on the dollar. The city will offer full face value, "not like a lot of these people on Craigslist," Colville said.  

CalPERS' investment losses in the housing market have generated a lot of news in the past year. Now the big pension fund is having problems with commercial real estate. The San Jose Mercury News reports here about three big East Bay office towers along I-80 going into default, jeopardizing investments by CalPERS and others.

The paper estimates that CalPERS put $50 million into the building.

To be fair, CalPERS' partner in this venture, Hines, has done well by CalPERS in the 11 years they've invested together. CalPERS has earned a 16 percent rate of return investing in office projects with Hines, according to CalPERS records. That's as of last Dec. 31.

One of the nation's major business lenders, CIT Group Inc., was scrambling to line up financing this week after failing to persuade the federal government to step in to prevent the firm from filing for bankruptcy.

CIT is one of the nation's largest lenders to clothing retailers and manufacturing firms. Typically, CIT provides cash up front and in return takes possession of the borrower's receivables. If you are a customer of CIT, and are having problems because of CIT's cash crisis, we'd like to hear from you. Please contact reporter Dale Kasler at DKasler@Sacbee.com, or (916) 321-1066.

Citibank today gave the state another one-week breather on accepting its IOUs.

Citi is one of only two significant banks - the other is Bank of the West - still accepting the notes. The largest banks, including Wells Fargo, Bank of America and Chase, stopped taking the IOUs last Friday. That's forced some vendors and other IOU recipients to scramble for cash.

"With the state so close to reaching an agreement, we believe the right course of action is to stand by our customers by providing them with all the resources they need to run their households and their businesses," said Citi California President Rebecca Macieira-Kaufmann in a press release. "We will continue to evaluate the budget situation and monitor our position daily as the negotiations progress."

Citi has about 6 percent of the state's banking market.

California unemployment clocked in at 11.6 percent in June, officials said today. Another 66,500 jobs disappeared during the month.

The statewide unemployment rate was actually unchanged from a month earlier. The rate for May was originally reported at 11.5 percent, but that was revised upward a tenth of a point. But the continued job loss showed the state remains firmly in the grip of a nasty recession.  In the past year, some 766,300 jobs have been lost.

Sacramento area unemployment jumped a half point to 11.6 percent. The four-county region lost 400 jobs, with significant losses recorded in the professional and business services sector. That covers everyone from architects to temp workers.

In the past year, the region has lost 46,100 jobs, or 5.1 percent of the total.

Californai's unemployment was the sixth highest in the nation. Michigan's was highest, at 15.2 percent.

    A New York investment firm said today it is officially opening trading in California IOUs today.

    SecondMarket Inc., which creates markets for hard-to-sell financial instruments, said it is opening an electronic market for California's registered warrants. The state has issued several hundred million so far, and plans to issue a total of $2.8 billion this month, as it struggles with a cash shortage.

    The firm says hedge funds and other investors have expressed interest in buying the interest-bearing IOUs. Trading is conducted at the firm's Web site, www.secondmarket.com. Trading is free for sellers, but buyers will pay the "standard transaction fee," the firm said.

     While it's not clear what price the notes will bear, a search on Craigslist shows that buyers are offering 80 to 95 cents on the dollar.

    Local governments and private vendors are the main recipients of the IOUs. Taxpayers expecting refunds from the state are also getting the notes.

    The secondary market took flight after most major banks stopped accepting the IOUs last Friday. The Securities and Exchange Commission has declared that the notes are investment securities and recommends that sellers use a registered broker-dealer.

   Maybe it's easy for economist Sung Won Sohn to be optimistic about the recession coming to a close. Sohn, who's been tracking the California economy for years, has a second job, as vice chairman of the Forever 21 clothing chain, one of the few retail success stories out there.

    Dropping by the Bee this week, the Korean American economist noted that Forever 21 is dipping into the Asian market with a just-opened store in Japan. He said his job with Forever 21 "gives me a very good window into what's happening with the consumers."

    His view: While the economy is still in sad shape, a Depression has been averted and things should start improving sometime next year. Easy money policies by the Fed are helping. The financial markets have stabilized. The federal stimulus plan hasn't flooded the economy with cash yet, but it did create a psychological boost and will start to boost the economy significantly in 2010.

    Problems still abound, he said. Unemployment will keep rising well into next year. The credit markets are still somewhat frozen, though not as badly as they were. Commercial real estate is just starting to run into serious headwinds. The spring rally in the stock market probably created more optimism than was truly justified.

     "We're doing better but we're not out of the woods yet," he said.

      Right on cue, the stock market shot up sharply this morning, thanks in part to a solid earnings report and forecast from Intel Corp.

     Sacramento's unemploment rate will hit 13.5 percent by the middle of next year, according to a forecast released today by California State University, Sacramento.

     The latest installment of the Sacramento Business Review, a joint venture between the university and the Chartered Financial Analyst Institute, says the region can expect to lose 20,000 jobs over the next year.

     A key reason is the state's budget crisis, which will likely mean substantial downsizing in state government. "It's a $26 billion shortfall and we know they are not fixing it using taxes this time," said Sanjay Varshney, dean of the university's College of Business Administration. "No matter how you slice it there's going to be a combination of layoffs and furloughs." The cutbacks in state payrolls will lead to job losses elsewhere in the public and private sectors, he said.

      He also said the area's real estate market "really hasn't found a bottom yet. The decline in property values really puts a damper on consumer confidence." In addition, he believes the federal stimulus bill hasn't generated much oomph yet.

      The forecast said statewide unemployment could hit 14 percent.

      Sacramento unemployment hit 11.1 percent in May; the state figure was 11.5 percent. Figures for June will be released this Friday.

    The Valley's hometown department store chain is history.

     Liquidation sales begun months ago have concluded. The last four stores closed Sunday, two in Fresno and one each in Clovis and Visalia.

    Here's the story in our sister paper, the Fresno Bee.

     We've reported in the past few months about job cuts at casinos in the Sacramento area and northern Nevada, from Thunder Valley to Red Hawk to the Horizon at Lake Tahoe.

     Here's further evidence of a slump-ridden industry: International Game Technology, a Reno company that makes slots and other gaming devices, laid off 161 workers last week. That includes 55 layoffs in Reno, as reported by the Reno Gazette-Journal.

    This follows 200 layoffs in January and another 500 last fall.

     The recession has taken a huge bite out of the casino business. Revenue at Nevada casinos fell 8 percent in May, for instance.

    The debate over California's IOUs and its budget crisis ultimately boils down to the state's creditworthiness: Will the state default on its obligations? It never has before, and state officials say it won't happen this time, despite a $26 billion deficit.

    But....some in the private market aren't so sure. CMA - a London firm that follows the market for credit-default swaps - puts California in some uncomfortable territory when it comes to probability of default. (Credit default swaps are a kind of insurance policy that banks, etc., can buy to protect themselves if a security goes splat).

    On its Web site, CMA ranks the top 10 government entities in the world according to their probability of default. California came in ninth, with a 26.75 percent probability. It was just ahead of Romania (24.53 percent) and just behind Lithuania (29.38).

    No. 1 on the list is Argentina, at 73.79 percent.

    To see the full list, click here and scroll down a bit  until you see the "Sovereign Risk Monitor." ,

    There's a lesson in all this about American ingenuity. Or, if you prefer, the insatiable desire to make a buck.

    Either way, I'd like to call your attention to our story in today's paper about the emerging secondary market for California IOUs. It seems that there are investors will to pay cash for IOUs - at a discount, of course. The idea is that the investors can collect the full amount, plus interest, when the IOUs mature on or before Oct. 2.

      Meanwhile, a state Assembly committee today approved a bill that would let state contractors and suppliers use their IOUs to pay their state tax bills and fees.

      As one caller wryly told me this morning, this represents just about the only progress on the budget made by the Legislature lately. 

     We got a fair amount of response to our story in Thursday's Bee about how neighboring states are trying to pounce on California's budget problems.

      The most intriguing was probably this one: an email from an Irvine man named Joseph Vranich who says he created a consulting firm this week ... to help companies leave California.

      And who says California entrepreneurship is dead?

     Here's a link to Vranich's blog.

   The recession is, uh, still going strong. For all the talk about "green shoots" and "rays of hope," we've still yet to bottom out.

    Today's national unemployment report makes that very clear.

  The Labor Dept said unemployment rose a tenth of a point, to 9.5 percent, the highest in 26 years. Worse, the economy lost 467,000 jobs, a lot more than expected.

     Here's a story by the Associated Press  about the job losses and the impact it's having on the stock market.

   We tend to hate high oil (and gasoline) prices, and often that's justified. Big spikes in energy prices can hurt the economy. But often the role energy prices play in the economy can be a good deal more complicated.

    Oil prices are driven by supply and demand, and low oil prices are often a sign of weak demand. Weak demand usually signifies a weak economy. Like now. So, if you follow that logic, we should root for higher oil prices, right? We should be pleased that oil prices have been climbing lately, right?

    Well, not exactly. Like I said, it can get complicated. Analysts say prices are being nudged up by shrinking supplies - not rising demand. And that, of course, is worrisome.

     Here's an Associated Press story analyzing why crude is topping $70 a barrel today.    

    Two of Home Front's favorite topics - economics and baseball - collided recently, and the results weren't pretty. Sony Pictures has just pulled the plug on a movie version of "Moneyball," the bestselling book about Oakland A's general manager Billy Beane. Production was supposed to begin last week in LA, Oakland and Phoenix.

     In this account in the New York Times, the movie died in part because of economics. Home video revenue, a huge income source for Hollywood, is in serious decline.

     However, this story in the LA Times says much of the blame lies in the dreaded creative differences between Sony and the movie's director, Steven Soderburgh. Either way, it's too bad. I mean, when's the last time you saw a good movie starring the Oakland A's?

    Welcome back. I missed you. Nothing like two weeks' vacation to bring you a fresh perspective on the economy.

    Unless, of course, it's the same old perspective on the economy.

    The state Board of Equalization released figures today on gasoline and diesel consumption for the first quarter, and they reflect an economy stuck in neutral. Consumption fell 5.6 percent in the quarter compared to a year ago - a drop of 213 million gallons.

     It's one thing for consumption to drop when prices spike. In this case, prices have been pretty moderate compared to a year ago, even with the runup since New Year's.  Californians are staying home more because of economic reasons, simply put.

    The latest conventional wisdom is that the avalanche of layoffs seems to be tapering off. Job losses are still heavy, nationwide and in California, but not as bad as a few months ago.

     But the New York Times' economics writers came across an interesting blog written by Jeffrey Frankel, a Harvard economist, that casts things in a gloomier light.

     Frankel says payroll jobs statistics make a nice economic indicator, but the number of hours worked is better. And in that regard, things are still slipping badly. He notes that the total hours worked by Americans in May fell 0.7 percent. What's more, the average work week fell to its lowest level since 1964.

     When demand starts to improve, companies end furloughs, pile on the overtime, etc., long before they get up nerve to re-hire, he says.

   Bottom line? We might not be that close to bottoming out, after all, he says.

    You can read the blog here.

    Speaking of work weeks, this half of Home Front is taking a couple of weeks off. See you in late June. Be nice to Wasserman.

    The Federal Reserve says Americans' net worth fell by a combined $1.3 trillion during the first quarter.

     Read the AP story here.

        Great question. No one really knows. Someone who does a lot of thinking about this topic - Michael Bernick, former director of the California Employment Development Department - just dropped by the office to chat and he offered a few observations:

         - California's post-World War II history says some industries will be permanently downsized by the recession, but other industries will flourish, including industries we've never heard of. "You know that the jobs lost in auto dealerships aren't coming back," said Bernick, a San Francisco lawyer and senior fellow with the Milken Institute. The question is, will history repeat itself? Will new industries arise to pick up the slack? He thinks so but has his fingers crossed.

         - A few months ago, Bernick said information technology has progressed to the point that employers are quicker to spot trends - and adjust payrolls accordingly. In his view, we saw a slew of layoffs much earlier in the recession cycle than normal, and he believes this means they'll be quicker to rehire. He still thinks that's true, but he was dismayed that the April job figures weren't better. In April, some 64,000 jobs disappeared in California - slightly more than in March.

         "The numbers last month were sobering," Bernick said. "Hiring has not at all picked up."

         The May numbers will be released next Friday, June 19.

    We talk a lot about the state's fiscal crisis, we tend to forget that the US government is expected to run a $1 trillion deficit this year.

      The New York Times carried an interesting piece today about the federal budget deficit and how it got so huge.

          California consumers have regained some of their swagger. But it's not clear if they will back that up by actually consuming.

         We've written before about the ''paradox of thrift," in which the propensity to save hurts the economy by taking money out of circulation. Now comes a new survey by Chapman University in Orange County that says California consumer confidence is back up to levels from the fourth quarter of 2007, before the recession began.

         Problem is, confidence doesn't automatically translate into spending. For the past couple of months, national surveys have shown improvements in consumer confidence but there hasn't been a corresponding increase in consumer spending. Americans continue to hunker down - not a bad thing on an individual level, but it will stall the recovery if everyone does it.

        Anyway, the Chapman survey has consumer confidence in California rising sharply in the second quarter.

        ....and falling and falling. Shipments from California's ports dropped a whopping 25.5 percent in April from a year earlier. That's according to Sacramento's trade guru, Jock O'Connell of UC Center Sacramento.

         That's a sign of a lousy economy, of course. Imports that passed through California's ports also fell in April, by 28.5 percent.

          The numbers are getting worse; the dropoff earlier this year was about 20 percent or so.

         Does that mean the economy's getting worse? Not necessarily. O'Connell says trade figures tend to lag the economy. Cargo shipped today was bought (or sold) months ago. So the dismal April figures are a reflection of the economy several months prior.

        So even as the economy shows signs of bottoming out, it'll be quite a while before we see an improvement in those trade figures.

     Gas prices were creeping up steadily the past few months, and now they're doing a lot more than that. The statewide average jumped 47 cents in the past month, to $2.92, AAA said today.

      The Sacramento average of $2.90 is 45 cents higher than a month ago.

      The state's priciest gas, at least among the cities surveyed by AAA: Eureka, at $3.16.

    It's increasingly typical for people to think of California's budget crisis as a product of wreckless overspending. Even legislative Democrats seem to have given up on further tax increases and will focus on spending cuts.

     The other day Steve Levy, director of the Center for Continuing Study of the California Economy, sent out a five-page white paper attempting to put California's spending habits in perspective.

     Keep in mind that Levy is something of a lefty, and his paper begins with a warning against "destroying our safety net and putting our future prosperity in danger by cutting investments in education."  He argues that the deficit is "100% the result of the deepening national recession."

     Whether you agree with his perspective or not, he makes a couple of interesting points.

    Such as:

      - State spending is growing more slowly than it really should, once inflation and population growth are considered.

      - The state bureacracy isn't as bloated as you might think. California has the second lowest ratio of state workers to general population among the states. California had 103 employees per 10,000 residents in 2007, the latest figures available. The average was 143.

    At first glance, the national unemployment report today was a disaster, with the unemployment rate shooting up to 9.4 percent. That's the highest in 25 years.

     But economists reminded us that the payroll job figure is the more reliable statistic, and this was somewhat more encouraging. The nation lost 345,000 jobs in April, or about half  as many as in previous months.

     Sung Won Sohn, economist at CSU Channel Islands in Southern California, put it this way in his monthly report: "The massive hemorhaging of the past few months has abated." Still, he said the national unemployment rate will rise to about 10.5 percent in the coming months before subsiding.

    The Web site Politico.com says Austan Goolsbee, White House economic advisor, gave a rather bleak preview of Friday's May unemployment report.

     "I fully expect it's going to be a terrible jobs report," he said. "We're not anywhere out of this."

     The report comes out first thing Friday morning.

  Once again we get the surprising news that, by some measures, other states are suffering through the recession in rougher shape than California.

   This week the U.S. Bureau of Economic released state-by-state figures for 2008 gross domestic product. In simpler language, it's a report on whether each state's economy grew or shrank last year.

    The results: California's economy actually grew in 2008, albeit by a modest 0.4 percent. That's a sliver of the 1.8 pecent growth recorded in 2007, and 3.1 percent the year before.

     It's also below the U.S. average of 0.7 percent.

     Twelve states saw their economies shrink last year. The biggest loser was Alaska, whose economic output fell by 2 percent. That's probably a reflection of the steep slide in oil prices during the second half of the year.

    If you care to read the full report, click here.   

    Forbes magazine did an interesting study last month on the cities where consumers are carrying the heaviest credit card debts. The results probably won't shock you: California and Florida, the twin hubs of the foreclosure crisis, are also the capitals of credit card debt.

     The magazine says Miami is No. 1, with credit card debt amounting to 22.61 percent of household income. The top ten is dominated by California and Florida, with little old Sacramento coming in No. 10. (Forbes says credit card debt totals 15.11 percent of the area's household income).

      You can find the story here. When you're done reading, click on the link at the bottom that says "Where Americans are Overspending" and you'll get a slide show counting down the top 20 cities.

   I've written about this before, so forgive me. I'm still struck by the weird dual track of the economy.

    Today the stock market soared on news of encouraging economic data.

     Yet this was the very same day of the bankruptcy filing of General Motors (You remember GM, right? As in, "What's good for General Motors is good for the country," and all that). Not that the bankruptcy was a shock, but still - it's a staggering symbol of the pain confronting this economy.

     And on the local front, we had another small example of the continued downward drift of the economy today: NEC Electronics is imposing two all-factory furloughs this summer. The furloughs will close the plant for two weeks at a time, idling 750 workers.

    This is the same plant that's preparing to permanently downsize next spring.

    We'll have more on both of these stories in Tuesday's paper.

    CalSTRS is the quieter of the two big public pension funds around here, but the votes it casts on proxy fights do carry considerable weight.

    Now the fund, formally known as the California State Teachers' Retirement System, said today it's creating an online system so people can track its proxy votes. The votes will be available through a partnership with www.proxydemocracy.org.

    Like its cross-town rival CalPERS, CalSTRS has traditionally announced its votes on selected high-profile matters. Now, it says, every vote will be available.

   Home sale prices inched up again in California in April, the California Association of Realtors said today. The median price of an existing single-family home rose 1.4 percent in April from the month before, to $256,700. This was the second straight month-to-month gain.

     However, the price was still 36.5 percent a year ago.

     The volume of sales jumped 49.2 percent from a year earlier.

     The association said the numbers suggest stability in the market. With two straight month-over-month gains in pricing, "it appears that the median price is now at or near the bottom," said the association's chief economist Leslie Appleton-Young in a press release.

      It doesn't take a genius to predict that the state's two big public pension funds, Calpers and Calstrs, could figure prominently in the state's budget mess.

      The two retirement systems are underfunded following a year of terrible investment losses. At some point they'll need hundreds of millions of dollars in additional annual contributions from their various constituencies - the state, the school districts and municipalities, the employees - to pay their pension obligations.

      Calpers has the authority to demand higher payments and plans to do so beginning in July 2010. Calstrs has to go begging the Legislature for permission to raise rates, and is starting to beat the drum for such an increase.

      But it won't come easy. Republicans and Democrats are tossing out the idea of raising retirement ages as a way of cutting pension costs. On former San Diego newsman Ed Mendel's pensions blog, ex-Assemblyman Keith Richman is proposing a one-year pension "holiday" in which the state would defer the $4.6 billion it contributes to the two pension funds. And municipalities, school districts and others that use Calpers and Calstrs for their pensions aren't thrilled about the prospect of higher rates at a time when they're laying off workers.

     Let the fun begin.

   ...and they're kind of confusing.

    California's unemployment rate actually fell two-tenths of a point, to 11 percent. That was the first decline since last June.

     But don't be so quick to celebrate. Steve Levy, an economic consultant in Palo Alto, says the real number to focus on is payroll jobs. And that figure was pretty weak. We lost 63,700 jobs in April, which was slightly worse than the month before.

    He says this is a sign things are still getting bad.

     The unemployment rate, despite its visibility with the general public, tends to get dismissed by professional economists. It's calculated using a relatively small survey of households. The payroll jobs number is drawn from a larger survey of employers, and it has more credibility.

      Sacramento's unemployment number fell six-tenths of a point, to 10.8 percent. The region actually gained jobs - 200 of them - although the gains seem to be mainly seasonal. Agriculture, for instance, added 1,200 jobs.

     Meanwhile, sectors like retailing (minus 900 jobs) continued to retreat.

    One bit of intrigue was the construction sector. It showed no job growth, which isn't particularly good news considering that April is when it should be gearing up. But Diane Patterson of the state Employment Development Department noted that this was the first time since last August that the construction sector in Sacramento didn't shrink.

    Like I said, kind of confusing.

     Here's an early version of our news story, on our Web site. We'll be updating through the day on www.sacbee.com and will have more in Saturday's paper.

   Yep, it's almost time again. The state and local unemployment numbers for April will be released Friday (probably around 10 a.m. or so).

    To recap, Sacramento area unemployment hit 11.3 percent in March. The statewide unemployment rate was 11.2 percent.

     If you recall, state officials were trying to find some good news in all this by pointing out that the number of jobs lost in California in March was the smallest in October.

    Nevertheless, the jobless rate keeps climbing and climbing, and chances are the April results won't be any different. See you Friday.

    The casino industry is in something of a shambles, with the economy forcing cutbacks in Las Vegas and practically everwhere else. Recently we've written about layoffs at

Red Hawk,  Thunder Valley  and the Horizon at Lake Tahoe. 

      Now Bill Eadington, a University of Nevada, Reno, professor often quoted in the paper on gaming industry issues, is hosting a five-day global conference at Tahoe.

      The conference, starting May 25, will be held at Harrah's Lake Tahoe Resort in Stateline. There will be speakers from as far away as Australia, South Africa and Macau, and topics will range from economics to blackjack analysis.

      For more information, call 775-784-1442, or visit www.unr.edu/gaming.

     In case you missed it, Sacramento's Pacific Ethanol Inc. has been forced into bankruptcy.

     Technically, the company itself hasn't filed - just its four operating plants. The company says it will stay in business, but this marks a new low point for the troubled ethanol industry. The days when people like Bill Gates rushed to invest, and plants were popping up everywhere, are long gone, at least for the time being.

    Analysts speculate that Pacific Ethanol's four plants, including two in Calfiornia could wind up being sold. When Midwest ethanol maker VeraSun went bankrupt, oil refiner Valero Corp. bought its plants at a steep discount.

     We'll have more in Tuesday's paper.  

   The vacancy rate keeps creeping up at Sacramento-area shopping centers.

    The rate hit 11.8 percent in the first quarter, according to a report released today by Colliers International's Sacramento office.

    That's up from 10.7 percent at the end of 2008. In the third quarter it was 8.8 percent.

     If this makes you feel any better, we have plenty of company: 36 of the 42 markets tracked by Colliers experienced higher vacancy rates in the first quarter.

     The growth of retailers such as Kohl's (which is picking up some of the Mervyns locations around Sacramento) helps. But things are certain to get worse before they get better. The death of Gottschalks Inc. this summer is one of the more notable retail stories we're tracking these days.

   Looking over the list of Chrysler dealerships targeted for closure is like driving the back roads of small-town America. It's striking how many dealers Chrysler has in out-of-the-way places like Newtown, Conn., and Osceola, Iowa.

      Incredibly, there are two Chrysler dealers in Grass Valley - a perfectly fine community, mind you, but hardly a major metro. Both are going to close, although my colleague Mark Glover notes in today's Bee that they've been essentially moribund for some time anyway.

      Glover says that's been the American way for many years in car buying - the US automakers have flooded the smaller markets with dealerships to corner those markets. It's a strategy that's now giving way to the grim realities of budget cutting as Chrysler fights for survival in bankruptcy court.

     General Motors, also big in small towns, is beginning to eliminate a slew of dealerships as well.

   The state will lay off 5,000 workers statewide and make other cuts running into the billions as the state tries to wrestle with its budget deficit.

     The impact: more bad news for the economy. Sanjay Varshney, head of the business school at Sacramento State, points out that this was the one stable sector of the economy. Now it's faltering, too. That will hit everything from retail to real estate.

      The alternative could have been higher taxes. But they got raised already in February and there was no political will for raising them even higher. And as Jeff Michael of the University of the Pacific told me, hiking the sales tax another 2 cents would cause economic problems too.

      If you like delving into the details of this kind of stuff, here's a link to the Department of Finance's report on the May budget revisions. Meantime, we'll have plenty more in Friday's paper.

    Chrysler wants to close one fourth of its dealerships, but the hit list it released today leaves off the locations in the immediate Sacramento area.

     Go a little further outside Sacramento, though, and four dealerships are targeted for termination: Liberty Motors Dodge Chrysler in Grass Valley, Mother Lode Motors in Sonora, Oroville Motors in Oroville and Wheeler Jeep in Yuba City.

     Chrysler's list, filed today in US Bankruptcy Court, also includes Folsom Lake Chrysler Jeep, but the bankruptcy lawyers were a little late on that one. The shop folded a couple of weeks ago.

     We'll have more on this in Friday's paper.

   The bad news keeps piling up for Sacramento's Pacific Ethanol Inc.

    Today it announced a whopping 46 percent decline in first quarter revenue and issued a fresh warning of a bankruptcy filing.

    You might recall that in late March, Pacific Ethanol said it was on the verge of running out of cash. The company is still operating, somehow, but it said in an SEC filing today that it'll head to bankruptcy court unless it can quickly overhaul its debts or find new capital.

     It's so busy bailing water, it couldn't file its first quarter results on time. But it did reveal preliminary numbers, and they weren't pretty: more losses, and that big drop in revenue. The company's sales are way down - it has essentially shut off most of its plants - and prices are down, too.

    In my story in Sunday's paper about the paradox of thrift, I explored how our newfound tendency to save rather than spend has serious implications for the economy.

    It just so happens those wise guys at the New York Times ran a similar story Sunday, but from a somewhat different angle. The Times story questioned economists about how permanent this new trend will be. You can find the story here.

   For all the (somewhat) encouraging news that keeps popping up nationally, the Sacramento area still looks rocky.

     A forecast out today from the Sacramento Regional Research Institute says the six-county region will lose 54,000 jobs over the next year. That's nearly double the job loss recorded in the previous 12 months.

    "The forecast offers no hope for significant recovery" for at least 12 months, the authors wrote.

    The institute is affiliated with Sac State and SACTO, the Sacramento Area Commerce and Trade Organization.

       The national unemployment numbers came out today, and there was some good news and bad news in there.

      The bad news was obvious - another 539,000 jobs disappeared in April, and the national unemployment rate went to 8.9 percent, up four-tenths of a point. This is the highest it's been since 1983.

     The Economic Policy Institute, a left-leaning think tank in Washington, declared that the numbers don't deliver "the hopeful signs that many are looking for."

    Ah, but others saw reasons to be cheerful. Sung Won Sohn, economist at CSU Channel Islands, noted that the rate of job loss is slowing. He said "the worst is behind us." In March, for instance, the job loss was nearly 700,000.

    No one is predicting a quick end to the recession. Even by the most optimistic scenarios, unemployment will keep rising for quite some time.

     Here's a story about the unemployment numbers from the New York Times.    

   We got our first glimpse today at how the new Red Hawk Casino is doing, and the results are...OK.

    Lakes Entertainment Inc., the Minneapolis firm that manages the Shingle Springs gambling palace, said today that the crummy economy is hurting Red Hawk's "ability to achieve consistently strong operating results," in the words of CEO Lyle Berman.

    This is in line with the general malaise in the casino industry. You'll recall that just in the last week we've reported on layoffs at Thunder Valley and a permanent downsizing at Lake Tahoe's Horizon casino, which is eliminating table games.

     The national news continues to brighten a bit here and there. Today we had a 200-point jump in the stock market, thanks to good news on housing sales.

     Around here, though, we still have more than our share of bad news to dribble out, signifying the recession is far from over. Earlier today we learned that the mega-palace known as Thunder Valley Casino is laying off 5 percent of its employees. 

     Just a little while ago, the State Controller's Office released the final state personal income tax revenue collection figures for April. The numbers were less than ideal. Not only was revenue well below April a year ago, the state is now running $700 million behind forecast for the fiscal year.

    You may have missed it, but my colleague M.S. Enkoji had a brief story over the weekend about the old Tower Records on Watt Avenue is becoming a Goodwill Industries thrift shop. 

     Not to take anything away from the good work done by the folks at Goodwill, but there's something a little sad about this. The Watt site is one of the iconic retail locations in all of Sacramento, remember. Originally known as Tower North, the outlet was the first stand-alone Tower Records that ever opened, in 1960. The original Tower opened in the back of the old Tower drugstore on Broadway.

    The chain became a global powerhouse. It folded in 2006.

    This feels like ancient history. Incomes in California were on the rise...in 2007.

     The statewide median incomes on joint returns jumped nearly 3 percent that year, to $68,797, according to figures released late Wednesday by the Franchise Tax Board. The median income on individual returns increased 0.72 percent to $35,646.

      Sacramento County incomes were slightly below the state, at $68,394. Placer and El Dorado counties had among the highest incomes in the state; both came in at more than $81,400.

    Wish I'd seen this sooner. The State Controller's Office has a nifty link on its Web site showing the daily personal income tax receipts for April.

    Follow it here and see for yourself: The money isn't flowing in like it did last year.

     We'll have more on the state's tax and budget situation in Friday's paper.

    It sounds more than a little counter-intuitive. President Obama today said the imminent bankruptcy filing by Chrysler LLC, with government support, was a step toward self-sufficiency. The head of Chrysler, Bob Nardelli, just told CNBC the whole thing can be wrapped in a tidy package in a couple of months.

     But there is precedent for this, right here in Sacramento. Back in 2003, Tower Records had a deal in place with the vast majority of its bondholders to keep the struggling music retailer going. The creditors were going to forgive much of Tower's debt in exchange for a big ownership stake.

    But a few bondholders didn't like the deal. So Tower in 2004 filed a "pre-packaged" Chapter 11 bankruptcy. The company was able to use the bankruptcy laws to cram the deal down the throats of the dissident bondholders. The case lasted barely a month.

    That's similar to what's happening with Chrysler: The plan is that the holdouts among the bondholders will be forced in bankruptcy court to accept Chrysler's terms.

    Of course, the parallels aren't exact. Along with an alliance with Fiat, Chrysler is getting about $8 billion in government aid. Tower was left pretty much to struggle on its own.

    For Chrysler's sake, hopefully the automaker will meet a better fate than Tower. Two years after emerging from the first bankruptcy, Tower fell on hard times again and had to file a second time. It wound up being liquidated.

     This just in from the California New Car Dealers Association:

     New car sales in California fell 43 percent in the first quarter vs. a year ago.

     Only 231,726 new cars were registered with the state during the quarter. The association says California's on pace to sell fewer than 1 million new cars this year. That hasn't happened since 1975.

     More in Wednesday's paper.

   Ah, you readers. You catch everything.

   In my story last week about the state's new "low carbon fuel standard," I made a reference to "car-crazy California." Seemed like a clever way to lead the story, and you know how much I like clever.

    But alert reader Peter Jacobsen points out that Californians aren't as wedded to the automobile as we tend to think. Did you know that we only drive about half as much as people in Wyoming? It's true. According to the US Department of Transportation, Californians drove only 8,982 miles per capita in 2006. That was just 44th highest. Motorists in Wyoming were the biggest road hogs, logging 18,281 miles.

    Obviously, all those wide-open spaces in Wyoming had something to do with this.

      So, even with California's long-standing devotion to cars, there are lots of places that rely on motor vehicles more than we do.

    In case you missed it, here's my story from today's paper on the dismal first quarter results at The Bee's parent, The McClatchy Co. of Sacramento.

    And in case you can't get enough about the industry's troubles - because you either hate us or love us, or you're just curious - the Wall Street Journal has put together an easily digested chart that summarizes the cutbacks and other problems at the nation's 100 largest papers. (You can find The Bee at No. 25).

     Of course, newspapers aren't the only media institutions suffering through this downturn. Radio, TV and magazines are hurting, too, and you should look for a story I'm doing on that topic in the next week or so.

   We try to keep things mostly local here at Home Front. But occasionally a national business-news story leave us slack-jawed, and we have to share it with you.

    This is one of those. The Associated Press is reporting that General Motors is working on a plan to close most of its plants for nine weeks. The idea is to give the company a chance to clear out some of its unwanted inventory.

    Chrysler closed its plants for a month earlier this year, but this is amazing. Nine weeks. 

     It's unclear whether this would include the NUMMI plant in Fremont, a joint venture between GM and Toyota.

    Always looking to accentuate the positive here at Home Front, we bring you this tidbit about the impact of the recession and the financial crisis in New York: scores of expensive seats going unfilled at the new Yankee Stadium. 

    Of course, expensive really means expensive in this case. The priciest seats go for an astonishing $2,650; even my friend Doug, one of the world's biggest Yankee fans, calls the new stadium a monument to greed and excess.

    Meanwhile, my beloved Fenway Park in Boston continues to sell out...

    In Sacramento, you'd have the field to yourself these days.

    Colliers International real estate, in a report on Sacramento's industrial market, said there were no new industrial buildings built during the first quarter. That was a first in the 25 years Colliers has been keeping these records, said research director Garrick Brown.

    In fact, development of warehouse and manufacturing space has been slow for quite some time, in part because high land costs drove developers to places like Reno and Stockton.

    Colliers said the lack of new supply has kept vacancy rates fairly low - just 11.2 percent, up from 9.9 percent a year earlier. The rate will continue to rise, but it's nothing compared with the retail sector. Developers of shopping centers went overboard, and vacancies have soared into the teens from around 7 percent two years ago.

    In industrial space, "there was no bubble at all," Brown said.

  The New York Times Co. this morning reported big first quarter losses and a 27 percent drop in revenue, which leads me to a story I'm working on - namely, the fact that the big advertising slump goes beyond newspapers. Magazines, TV, radio are affected, although it seems as though newspapers are getting the worst of it during this recession.

   Interestingly, people I've talked to in the Sacramento media market are somewhat upbeat. They're not minimizing the effect of the downturn, but they say they're seeing some of the glimmers of hope the president keeps mentioning. So we'll see.

    The Bee's parent, The McClatchy Co., reports its Q1 results Thursday morning.

   In case you missed it earlier today, the state and local unemployment rates came out.

    They were (brace yourself) pretty bad.

    Unemployment has now crossed the 11 percent threshold in California and the Sacramento region. The March rate for California is the worst since 1940, at 11.2 percent, although going that far back in time is a little dicey because the methods for calculating the rate were much different then. If you go back as far as 1976, when modern record keeping began, this is the worst ever.

    Some other notes:

     The state lost 62,100 jobs, the fifth straight month at 60,000 or more. But it's only half as bad as February, which the state's chief economist Howard Roth took as a glimmer of good news.

    The health care industry might not be immune to the recession after all. It lost 100 jobs in Sacramento last month - not a lot, but worrisome when you consider what an engine of growth it's been.

     The construction industry keeps bleeding. Some 1,700 jobs were cut in Sacramento last month. Usually in March the industry expands.

    More in Saturday's paper.

   I called up the folks at Dimple Records in Sacramento for a story and wound up getting a good-natured earful from the chain's co-owner, Dilyn Radakovitz.

    She assumed I was calling about Record Store Day and was delighted to talk about that. I actually needed her help for a story about the recession, and she was willing to discuss that, too. (The story is scheduled to run Sunday and will cover those businesses, like Dimple, that are expanding during a downturn).

     But since Record Store Day is coming up Saturday, let's take a minute and talk about it. It's the second annual event aimed at promoting independent record stores. Dimple, R5 Records and other indies are planning special sales and promotions.

     Sacramento suffered an enormous loss when Tower Records folded in 2006, so let's hear it for the survivors - the merchants working to keep music retailing alive.

     The status of the Elk Grove Promenade mall got even shakier, if that's possible.

       The long-delayed mall's developer, General Growth Properties, filed for Chapter 11 bankruptcy protection today.

        The partly built mall is already in limbo, and General Growth has been trying to unload the property. We'll have more updates in Friday's paper.

    Over the years, we've written about the economic interplay between California and Nevada. Business lobbyists will tell you that Nevada's low-tax climate is a constant threat to California's well-being, luring companies and wealthy individuals eager to flee California's high costs of doing business. Some economists say that idea is overblown.

   Now a group of California Republican lawmakers will hold a big public forum - in Reno - to call attention to the differences between the two states.

     The point of the April 24 forum is obvious: California is self-destructing with its high taxes and heavy regulation. The Republicans are hoping to spotlight ex-California companies that have relocated to Nevada. Nevada legislators and Nevada Gov. Jim Gibbons, a Republican, will participate, according to a press release issued by California Republican lawmakers. 

    Now, you know that Home Front is relentless nonpartisan. But I wonder if the Republicans will discuss just how bad Nevada's economy has become.

    True, its unemployment rate is still lower than California's (10.4 percent vs. 11.2 percent). But according to Palo Alto economist Stephen Levy, Nevada is third-worst in the United States for job loss over the past year, at 5.4 percent.

    California is ranked tenth on that scale, having lost 4.2 percent of its jobs.

    (Note: I've updated these numbers from my earlier blog post to reflect the March figures, released April 17)

   We went for a Sunday afternoon drive to Sutter Creek and got a bracing reminder of the problems that continue to plague the real estate market and the economy in general.

    Heading east on Jackson Road toward Rancho Murieta and beyond, I lost track of the signs advertising bank repos and - more telling - "new homes at foreclosure prices." There was a "For Lease" sign in front of the Sloughhouse Inn. (I guess it's been a while since we'd made this trek; it turns out the place closed in 2006).

    Sutter Creek was quieter than we'd seen it in years. One merchant said it's always like this on Easter Sunday, and I suppose that's true. But the whole afternoon left me thinking that while there appear to be signs of life in the economy, as President Obama said, we're still facing significant problems.

    Tonight I'll be testing that theory some more by counting the empty seats as Home Front's beloved Red Sox visit Oakland. The things I do to keep you guys informed....

    In putting together my blog post yesterday afternoon on the Cal Neva (see below), I got so worked up trying to find a clever Sinatra musical reference that I forgot to mention a book I just received in the mail.

    It's called "Cal Neva Revealed," and it's buy a fellow in Arizona named Philip J. Weiss who's something of a Cal Neva nut. Actually, he started out as a Frank Sinatra nut, and he eventually became a Cal Neva nut. He's written an incredibly detailed history of the ailing casino on Tahoe's north shore, and you can read more about it at his Web site, www.CalNevaRevealed.com.

      Meantime, we'll continue to keep an eye on the troubling developments at the Cal Neva.

    Some days you don't know whether things are brightening or getting worse. This is one of them.

    First off, Wells Fargo reported record profits, which sent the stock market up a quick 160 points or so. The message was that the credit markets may be loosening up, a good sign for the economy.

    Then comes a report from our friend Jock O'Connell, international trade advisor at the University of California Center Sacramento, who looked at the latest export numbers from the U.S. Department of Commerce.

    O'Connell's figures are in direct contrast to Wells Fargo's. He says California exports fell nearly 20 percent in February from a year earlier.

   "California's export trade is showing few symptoms of imminent recovery," he said in a press release. This was the fourth straight month of declining exports.

    He said the figures show the effects of the recession spreading around the globe.

    There's probably an appropriate Frank Sinatra song for this, something sad and lonely sounding. Maybe "One for My Baby,"   

     Anyway, the Cal Neva, the Lake Tahoe casino Sinatra owned in the early 1960s, went up for auction today, but no one bid.

     That means Canyon Partners, an LA real estate firm that foreclosed on the Cal Neva last month, has to keep the troubled resort.

      A Canyon Partners spokesman just told me the plan is to keep the Cal Neva open, although University of Nevada gaming expert Bill Eadington says the property's future is questionable.

    Michael Lewis, author of the best sellers "Liar's Poker" and "Moneyball," writes as authoritatively about business as anyone, and his piece in Vanity Fair on the rise and fall of Iceland's economy is worth your time.

     Iceland, you might recall, was a tidy, prosperous nation before it decided to turn itself into a miniature Wall Street. Now it's a complete shipwreck.

    Lewis' story can be found here. Enjoy.

      There was a time when the economy was bad but not yet awful. Let's take a look back to those relatively sunny days.

     I'm talking about the first quarter of 2008. The Board of Equalization today released taxable sales statistics from that quarter. They offer a portrait of the economy in the early days of the recession (which began officially in December 2007).

     California's taxable sales fell 3.7 percent in that quarter vs. a year earlier. It was the third straight quarter of decline - providing additional evidence that the recession began in California before it began nationally.

    Not surprisingly, things were worse in the Sacramento area than the state overall. Sacramento County taxable sales were down 5.3 percent. In the shopper's paradise known as Placer County, sales fell 7.3 percent.

     God knows how bad things got last fall, when panic hit Wall Street and the bottom really dropped out of the economy. We'll find out sometime later this year.

     That's the frustration with these Board of Equalization numbers, of course: the enormous time lag. Still, the stats are interesting.

    Maybe.

     After some cautiously good news on the economic front recently, the new national unemployment statistics landed with a thud: 8.5 percent, the highest in a quarter century.

      Some 663,000 jobs disappeared in March, the government said.

      The news interrupted the stock market's recent rally, although Wall Street wasn't going into complete panic.

       The story from the NY Times is here.

    Thanks to our colleague Mitchell Brooks, the interactive economic map in the right hand column of this page has been updated.

     We now have fresh forecasts from Jeff Michael, friend of the blog (and the head of the business forecasting center at the University of the Pacific). 

      Further down the page, we provide links to various economics sites, including the UOP forecasting center and Jeff's own  Central Valley economic blog.    

   Jeff Michael at the University of the Pacific says Sacramento area unemployment will hit 12 percent this fall. It will nudge up to 12.1 percent in early 2010 before starting to ease downward.

    The current rate in Sacramento is 10.8 percent.

     We'll have more on Michael's latest UOP forecast in Friday's paper.

     Also, keep an eye on that interactive economy map in the right-hand column of Home Front; we'll be updating it in the next day or so, thanks to Michael and his team.

   So now the economy isn't so completely awful, after all.

    At least that's what the stock market is telling us.

    The market's tentative rally went into full flower today. The Dow is up 270 points as I write this, with investors reacting to some good news on factory orders and (more importantly) the relaxation of mark-to-market accounting rules. With those rules relaxed, banks have more leeway in assigning value to distressed loans and other assets. That could unclog the credit markets.

      There also was some encouraging news from the G-20 summit, including a $1.1 trillion infusion into the International Monetary Fund.

     The whole thing makes you wonder, though. Unemployment is about to crack 11 percent in California and the Sacramento region, and nobody with any sense thinks the recession is anywhere near over. But the stock market is often a leading indicator of where people believe things are heading....

     We might never know exactly what happened in that closed-door auction for Gottschalks in Wilmington, Del., Monday. My hunch is, it wasn't much of a fight. A group of four liquidators, who had already been designated lead bidders, won the auction and will likely begin the going-out-of-business sale as early as Thursday.

    The lead bidders tend to win these bankruptcy auctions, so the outcome in Wilmington wasn't a big surprise. The other bidders were another liquidating group and a Chinese merchant, Shandong Commecial Group; Shandong was the only bidder of the three that was planning to keep Gottschalks open.

     The story broke late Monday and only made it into some home-delivered papers in Sacramento this morning. Here's the story Tim Sheehan wrote for this morning's Fresno Bee.

  We're working on our own story for Wednesday's Sacramento Bee, examining the economic implications. Here's a sneak preview: The implications are bad.

     Joe Penbera, a Fresno economist who's Gottschalks' lead director,told me that with the "multiplier effect," Gottschalks' 5,000 jobs really have an economic impact of up to 15,000 jobs. So losing Gottschalks is like losing a decent-sized Central Valley town, he said.

    There's nothing particularly shocking about this, but it jumped out at me anyway: The economy is forcing Californians to park their cars even though fuel is (relatively) cheap.

   Gasoline consumption fell 4.8 percent in the fourth quarter of 2008, compared with a year earlier, according to numbers released today by the Board of Equalization.

    Mind you, consumption tends to fall a bit when gas prices jump up. But during the fourth quarter prices fell by half, to around $1.80 a gallon by year end. By comparison, prices hovered in the $3 range during most of the fourth quarter a year earlier.

    Clearly the economic shock that began with the failure of Lehman Brothers in September nudged motorists into hibernation even as pump prices were plunging.

    Even more telling, perhaps: Diesel consumption fell nearly 10 percent, a sign that truckers were parking their rigs and hauling fewer goods.

    We like to think that California's got it the worst. That was the case the last two recessions, when aerospace fell apart in the 1990s and the dot-com's imploded in 2001. And with all the foreclosure activity going on, we figured Calfiornia was the biggest victim of the current recession.

    Maybe not. Palo Alto economist Stephen Levy looked at the latest state-by-state job numbers, just out from the Bureau of Labor Statistics, and determined that at least 10 states are losing jobs at a faster pace than California.

     Over the past 12 months, California has lost 4 percent of its jobs - a pretty hefty figure. It's elevated the state's unemployment rate to 10.5 percent. (That's tied with Rhode Island for fifth highest).

   In terms of year-over-year percentage job loss, nine other states are in worse shape than California. Arizona is doing the worst, having lost 6.7 percent of its jobs in the past year. (Although its total unemployment rate is "only" 7.4 percent.

     Next in terms of job loss is Michigan at 6.5 percent, then Nevada at 5.2 percent.

    Levy, head of the Center for Continuing Study of the California Economy, makes another interesting point: Business folks often lament about the loss of California jobs to neighboring states, but California's neighbors are among the biggest bleeders: Arizona, Nevada and Oregon (which has lost 4.7 percent of its jobs).

    Here's a link to the state-by-state numbers from BLS.    

    There was a chance Gottschalks was going to have to announce its liquidation Thursday. But a Chinese government-owned conglomerate that wants to keep Gottschalks open leapt into the bidding for the Fresno department store chain.

   That means when the auction begins Monday, there's a chance the retailer will survive. But the Chinese firm, a retailing and real estate firm called Shandng Commercial Group General Corp., will have to outbid two liquidating groups. One of the liquidating bidders, a group including Great American Group, has the upper hand because it's been designated lead bidder or "stalking horse."

   That means it gets paid a breakup fee of about $1 million of it loses the auction. That's not a trivial sum as these things go.

    Great American was the lead bidder in the Tower Records bankruptcy auction in 2006 and won a two-day auction for Tower's assets, outbidding the owners of the FYE record store chain. The going-out-of-business sale began the next morning.

    Another parallel with the Tower story: Gottschalks and Tower employed the same bankruptcy law firm in Delaware, Richards Layton & Finger. As in 2006, Monday's auction will be held at the firm's office in downtown Wilmington, about two blocks from U.S. Bankruptcy Court.

     We should know the outcome of the Gottschalks auction Monday or Tuesday. Stay tuned.

     The Gottschalks drama - will they survive or won't they? - might be settled as early as today. At some point the Fresno retailer's bankruptcy lawyers will file papers in court declaring whether anyone else is planning to bid on Gottschalks' assets.

    So far there's only one bid in hand - from a consortium of liquidators. Those are the so-called lead bidders who surfaced a couple of weeks ago. 

     Late yesterday, our colleagues at the Fresno Bee reported that two other companies might bid. One is another liquidator, Gordon Brothers. The other is an as-yet unnamed Chinese company interested in keeping Gottschalks open.

    If one or both of those bidders do indeed make a run at Gottschalks, then an auction will be held next week at Gottschalks' lawyers' office in Wilmington, Del.

    Of course, if the Chinese bow out and only Gordon Brothers enters the auction, there won't be a lot of suspense. It will be a duel between two groups of liquidators for the right to conduct a going-out-of-business sale.

    UPDATE: The Chinese are in. A firm called Shandong Commercial Group General Corp. is entering the bidding, with the intent of keeping Gottschalks open. Gordon Brothers is bidding, too.

     More details here and in Friday's paper.

    How does 12 percent unemployment sound for California?

    It wasn't that long ago that jaws were dropping when a few economists said statewide unemployment would hit 10 percent. Now we've blown right past that; the current rate for California is 10.5 percent.

     Today Jeff Michael at the University of the Pacific chimed in with his quarterly forecast: California unemployment will peak at somewhere just north of 12 percent in late 2009. That would be the highest since modern records were kept, starting in 1976, eclipsing the old record of 11 percent reported three times during the early-80s recession.

   Rates won't come back to single digits until late 2011, he added.

    When it's all over, California will have lost 950,000 nonfarm jobs, he said. Throw in the cutbcks in agriculture, thanks to the water shortages, and the total job loss will approach 1 million.

    Michael also said manufacturing will lead the decline in job losses this year, with 150,000 jobs disappearing.

    The UCLA Anderson Forecast comes out Wednesday.

   I was in the San Joaquin Valley the other day, doing some reporting for an upcoming story, and things aren't pretty there.

    I spent the day in Merced, where unemployment has risen to 19.9 percent, but the misery isn't confined to that community. The unemployment rates around the Valley are staggering: 16.4 percent in Fresno, 14.7 percent in Bakersfield, 15.8 percent in San Joaquin, and so on. Just to the north of us, it's 19.1 percent in Sutter and 18.6 percent in Yuba.

       Things look like they're going to get worse in the Valley before they get better. Today we reported on the latest signal that Gottschalks' bankruptcy is going to wind up with the retailer going out of business. The Fresno institution is already peddling its store leases, even though the formal auction for its assets isn't until next Monday.

    There appears to be some movement on LandSource Communities Development, the huge real estate  debacle that will likely cost CalPERS almost $1 billion. The Wall Street Journal reported today that homebuilder Lennar Corp. is negotiating to buy much of LandSource's properties at a discount.

     The negotiations are between Lennar and LandSource's creditors, according to the Journal. Many of the creditors apparently would partner with Lennar in a new company that would buy much of LandSource's land, including the big Newhall Ranch development near Los Angeles.

     CalPERS invested $922 million in early 2007 to buy a majority stake in LandSource from Lennar. LandSource filed for bankruptcy protection last summer. As an equity holder, CalPERS is likely to be left with nothing once the case is resolved, which is typical in most bankruptcies.

   We all know, of course, that this whole mess started with the housing market. But how did a bunch of loopy mortgages mushroom into an all-encompassing threat to the global financial system?

     Finding an understandable answer for that has proven difficult, at least for me. I'd like to call your attention to this piece in Wired magazine - it talks about credit default obligations and other intricacies of the markets in fairly down-to-earth language.

    The story isn't long, but it will take you some time to get through. You should read it carefully. It's a fascinating tale about one economist's mathematical formula, and what happened when legions of financial traders took the concept behind it and ran it into the ground. When you're done, you should have a decent idea about what happened to our financial system and why.

     Enjoy.

    You may have read that The Bee's owner, The McClatchy Co. of Sacramento, is struggling a bit these days. Part of the problem, besides the slide in profit and revenue, is the $2 billion in debt left over from McClatchy's 2006 purchase of Knight Ridder Inc.

    Now word comes from the Wall Street Journal that Florida investment fund manager Bruce Sherman, who essentially forced Knight Ridder to sell out, is retiring.

    Sherman's Private Capital Management was a big Knight Ridder shareholder, and he led an investor revolt that forced the San Jose chain to put itself up for sale. McClatchy took the prize, paying about $6 billion, including debt assumption. Now the remaining debt is something of an albatross around McClatchy's neck.

     The Journal's story says Sherman's investments in the newspaper industry, including a stake in New York Times Co., didn't fare too well. Sherman more or less broke even on his Knight Ridder investment, as McClatchy wound up paying about $60 a share for the company - about what Sherman paid for his shares.

    A group of reporters and editors sat around a conference table the other day discussin recession coverage. We're going to be rolling out more stories in the coming weeks on how people can cope with the economic downturn, and naturally a lot of the stories will include tips on saving money.

    Good advice, of course, but it raises the "paradox of thrift" issue. Namely, it's not necessarily good for the economy if everyone grows their own vegetables, knits their own sweaters or does something truly catastrophic - like cancel their newspaper subscription.

    I'm going to be working on a story about that very issue in the next couple of weeks and would love to hear from you. Email me at dkasler@sacbee.com if you live in the Sacramento area and are willing to be interviewed.

    In the meantime, Newsweek magazine offers its take on the subject.

   Hi again. Sorry I've been kind of out of touch lately. If you missed it, I've been busy writing about the Folsom Ponzi scheme. Our latest angle is that when the economy goes bad, the internal workings of the Ponzi creaks to a halt because the flow of new money dries up.

    Anyhow, on to something new: California's export market, which had been one of the mainstays of the state's economy last year, continues to weaken. Our friend Jock O'Connell, an international trade expert in Sacramento, crunched the latest numbers from the US Department of Commerce and found that exports from California dropped nearly 22 percent in January, to $8.66 billion. That's a difference of about $2.4 billion from a year ago.

    Exports of factory goods fell 21 percent. Exports of nonmanufactured goods (mostly farm products) fell 28 percent.

   O'Connell said this represented the third straight monthly decline and reflects the worsening in the global economy.

   You're not in alone. California consumer confidence has fallen again, according to a quarterly survey by Orange County's Chapman University.

     Confidence slipped 8 points from the fourth quarter, according to the university's California Composite Index of Consumer Confidence. The index now sits at 58.2 points, close to the record low of 57.6 in the second quarter of 2008.

    Any reading below 100 says consumers are generally pessimistic.   

    Well, at least gasoline prices are behaving themselves.

    AAA's monthly survey showed average prices for California fell 3 cents a gallon in the past month, to $2.20. The average in Sacramento fell 7 cents, to $2.19.

    But AAA said the decline is probably temporary, especially with OPEC hinting about production cuts. The conversion to eco-friendly (but harder to make) summertime fuel blends also has the tendency to push prices up.

   All of this is little consolation to folks in Tahoe City, which has the highest average price ($2.60)  of any market surveyed by AAA in the lower 48 states. (Before you email me from rural California: Yes, I know you have even higher prices, but your communities aren't surveyed by AAA so that's why they don't get mentioned in these stories or blog posts).

    My colleague Mark Glover will have a more complete report in Wednesday's Bee,. 

    When people aren't asking me about The Bee's future, they want to know whether the SF Chronicle will survive. (The paper is wildly unprofitable and Hearst Corp. has threatened to sell or close it unless its unions make steep concessions).

    Here's an update - editorial workers have agreed to take concessions. Next up: negotiations with the Teamsters.

    The Chron's story is here.

  Hi again. Got kind of busy Monday with some in-house stuff (the layoffs at The Bee and its parent, McClatchy) but now I'm ready to re-engage on the nuts and bolts of the area's economy.

    Which brings us to another sad story in retailing: the end of Organize It, a Citrus Heights store that sells all sorts of containers, shelving units, etc., for organizing your home.

    The store will close April 5 after 21 years on Sunrise Boulevard, says owner Charles Pattillo. He'll keep open his Web business, which operates at www.organizeit-online.com and www.organizeworld.com.

    He says business at the brick-and-mortar location dropped in half since he bought it six years ago.

    The Gottschalks drama seems to be moving toward an unhappy end. Our friends at the Fresno Bee have posted an online story saying a liquidating firm has been chosen as the lead bidder for the department store chain, which is operating in Chapter 11. We've just confirmed the story ourselves.

    Having a liquidating firm in the lead position doesn't mean liquidators have wrapped up the deal. Others can outbid the liquidators at an auction set for March 30.

    But the lead bidder, also known as the "stalking horse," has the inside track. Someone who outbids the stalking horse has to pay the horse a breakup fee - up to $995,000 in this case, according to court documents. In effect, the Great American team can buy Gottschalks for less money than anyone else. These additional costs can make all the difference at auction time.

   The lead bidder for Gottschalks is actually a team of liquidators, including Great American Group of Chicago. You may recall that Great American was lead bidder in the bankruptcy auction for Tower Records in 2006. It emerged victorious in the end, nudging out record store chain FYE. FYE planned to keep Tower open.

       We'll have more in Saturday's paper.              

    Well, not really. 

    Sacramento's new unemployment rate of 10.4 percent is the highest under the current calculation method, which took effect in 1990.

    I went digging through our microfilm and found that unemployment hit 12.9 percent in January 1983. But comparing the two is a bit of an apples-to-oranges thing, in part because the boundaries of official Sacramento have changed.

       In 1983 the metropolitan statistical area for Sacramento covered three counties: Sacramento, Yolo and Placer. Today the MSA includes a fourth county, El Dorado.

      The important thing is, don't get too hung up on whether this is a record or not. What's clear is that it's bad. The rate is 10.4 percent and rising fast (The rate for December was 8.8 percent).

      The retail employment numbers might be the most striking. Stores hired just 2,900 workers combined in October, November and December to prepare for the holidays - and cut 5,600 jobs in January. Between the stores that closed and the ones struggling to survive, a lot of "permanent," non-seasonal jobs disappeared in January.

     More - much more - in Friday's paper.

   The unemployment rate for Sacramento is 10.4 percent for January.

     Worse than we dared imagine. Here's the link to our online story.  

    This is the worst on record, although the records for local unemployment only go back to 1990. Chances are things were approximately this bad in Sacramento in the 1982 recession, says economist Jeff Michael at UOP.

      He and everyone else I talked to today say things will get worse.

      The December rate was 8.8 percent.

      The region lost 19,700 jobs  in January. January is always a bad month for unemployment. But things were worse than usual.

     Retailers cut 5,600 jobs - not an unusually high number for January, except when you consider that they did relatively little hiring in November and December. The January layoffs were more than the usual post-holiday cutbacks. They reflected "permanent'' jobs being sacrificed.

     It's no wonder when you consider all that's gone on, with Mervyns gone and Circuit City nearly gone. We'll probably know at the end of the month whether Gottschalks, now residing in Chapter 11, will make it.

    The construction industry also continues to suffer. It's not just housing anymore, as the commercial sector is weak. About one fourth of Local 340 of the International Brotherhood of Electrical Workers in Sacramento is out of work, said local president Greg Larkins.

     We'll have a lot more in Friday's paper.  

    The retail scene in Sacramento remains bleak. The vacancy rate jumped to 10.7 percent in the fourth quarter, up from 8.8 percent in the third quarter, according to Garrick Brown at Colliers International.

     He predicts vacancies will top 14 percent early next year.

      The big jump in the fourth quarter vacancies was due largely to the death of Mervyns, which concluded its liquidation around Christmas. Kohl's said it's taking over three of the nine Mervyns vacancies in the area, but that's only a partial fix for a sector of the economy that's been badly wounded.

    Hard to believe it's been two and a half years since Tower Records folded. Now one of its chief rivals is going out of business, too.

    Virgin Megastores is closing down in San Francisco and New York. The remaining stores in Orlando, Denver and Los Angeles will follow this summer, according to this report in Billboard magazine. 

     The Virgin store in Sacramento closed in 2005.

     The demise of the music superstore has been written about endlessly (by me and others), and the closure of Tower was a painful chapter in Sacramento's business history. Tower continues to live, in a manner of speaking, in the R5 Records Video store opened at Broadway and 16th by Tower founder Russ Solomon.

    It's a long way from AIG and the Dow's meltdown, but Sacramento's own Pacific Ethanol Inc. is continuing to go through some very tough times.

   In case you missed it, our colleague Bobby Caina Calvan had this report last week about Pacific Ethanol suspending operations at two more plants, including one in Stockton.

    Along with an earlier shutdown, the ailing company is now operating at about one third capacity, vice president Paul Koehler told me today.

    Analysts say things won't improve until ethanol profit margins recover.  Of course, that probably won't happen until gasoline prices go up a lot more.

    It's not like we sit around the office and place bets on this type of stuff, but several of us figured the statewide unemployment rate for January would top 10 percent.

   We were right. The number came in at 10.1 percent. That's the first time since 1983 that California has been at 10 percent or worse.

    Here's a link to our brief online story; we'll have much more in Saturday's paper.

   We're still waiting for the California unemployment numbers for January to roll in, but in the meantime, chew on this:

     The economy shrank at a whopping 6.2 percent rate in the fourth quarter of 2008, the government reported this morning.

     That's the worst showing in 26 years.

     Read the story here.

     The state and local unemployment numbers are a big story each month, as you can probably imagine. They're released on Friday mornings, usually around 10 or 11, and we wait with anticipation. (My fellow Home Fronter Jim Wasserman has lately taken to cringing before the numbers come out).

   This time we'll get fix in two doses. Tomorrow the Employment Development Department will release the January figures for the state and Los Angeles only. The rest of the local statistics won't come out until next Thursday.

    The reason has to do with the annual "benchmarking," in which the previous year's numbers are recalculated. EDD says the process is taking more time than expected.

    Nobody's been spared the impacts of the real estate collapse, it seems. Including the wealthy.

     You may recall a story I had three weeks ago about the sharp drop in sales for million-dollar homes. Now Chase International, a Lake Tahoe real estate brokerage that specializes in high-end properties, is offering a community workshop for stressed homeowners.

    The workshop is Saturday, March 7, from 10 a.m. to 2 p.m at Chase's office at 917 Tahoe Boulevard in Incline Village, Nev.

    Speakers will include brokers and lenders. Among the topics: foreclosures and short sales.

     If you're interested in attending, Chase wants you to RSVP at (775) 831-7300.

    The Atlantic magazine has an interesting piece this month on what the economic landscape (literally) will look like when the economy recovers.

    The story, by a University of Toronto management professor named Richard Florida, tries to predict economic winners and losers among various cities and regions. Among the losers: old-line manufacturing hubs, because they always do poorly in recessions, and Sun Belt cities that subsisted largely on the housing bubble. Among the winners: places like Silicon Valley and Los Angeles, which will continue to be supported by their creative/entrepreneurial classes.

    No mention of Sacramento. But it seems like Florida is arguing that cities that have something going for them other than manufacturing and real estate development will do OK. In that respect, Sacramento's traditional strength in state government should continue to serve the region well economically.

    Any thoughts?

   Here's something I've been wondering about lately: Supposedly we got ourselves into this economic mess by spending ourselves into oblivion. Everyone's telling us we should behave more intelligently with our money.

   But the federal stimulus package will shower us with billions in tax cuts so we can, you know, stimulate the economy.

    Can you see why I'm a little confused here?

    Michael Kinsley in the Washington Post had a terrific column on this today. Please give it a read.

    If you live in the Sacramento area and would be willing to be interviewed about what you plan to do with your tax cut, please contact me. I plan to do a story about this in the next week or so. I'm at dkasler@sacbee.com

    Everyone agrees there isn't much to like in the new state budget. Taxes are going up, spending is coming down (And for those you who despise government spending, you should understand that reducing government spending does take dollars out of the economy).

     Then again, it could have been worse.

      One of our favorites, Jack Kyser, chief economist at the LA County Economic Development Corp., summed up the prevailing mood this way:

      "As ugly as it is, we'll take it. The alternative was really bad."

     Meaning, having the state go broke would have brought substantial state-worker layoffs (not good for Sacramento's economy) and cancellation of billions in public-works projects (not good for California's economy).

    We'll take a closer look in Friday's Bee on the economic impact of the higher sales tax (an extra penny) and personal income tax (an extra 0.25 percent, although that could shrink).

    President Obama is unveiling his plan to help up to 9 million Americans avoid foreclosure later this morning.

   We'd like your comments. Specifically, if you're a Sacramento-area homeowner in danger of foreclosure, and would be willing to be quoted by name in Thursday's Bee, please call me at (916) 321-1066 or email me at dkasler@sacbee.com

   Thanks.

    We usually don't use space in the Front to give publicity for someone's promotional offer, but this one caught our fancy. It's as if they're starting to feel sorry for us because we live in California.

      An Arizona resort is offering "Free Furlough Fridays" for California residents, a promotion inspired by the unpaid furloughs imposed on state workers.

       The Sheraton Wild Horse Pass Resort & Spa in Chandler, Ariz., will let California residents stay free on Friday night if they book a two-night stay. The offer is valid through Dec. 31. The offer is good to anyone, not just state workers, carrying a valid California identification.

      For information, call (602) 225-0100 or visit www.WildHorsePassResourt.com and use the CALI2009 promotional code.

    Several of you asked about our story in Sunday's paper about the new Home Depot opening in Auburn. It seems a certain reporter neglected to include the address. So here it is:

   11755 Willow Creek Drive, just off Highway 49 heading toward Grass Valley.

   It's like a kind of tug of war. Congress is on the verge of passing President Obama's economic stimulus plan at the same time the California Legislature is preparing to vote on a budget deal that would partly offset the impact of the Obama plan.

    In its simplest terms, these two bills work out this way: The state budget would take $30 billion out of the economy via higher taxes and reduced spending. The federal stimulus would ship California something on the order of $80 billion of economic benefit, through increased spending and lower taxes.

     The bottom line is a net gain to the state, economists tell me. But it would be a lot better if the state didn't have to undertake its deficit-reduction plan.

      The one good thing for Sacramento is that if the budget passes, Gov. Schwarzenegger will put away his threat to lay off 10,000 state workers - a move that would have hit especially hard here.

   Exports remained a strong segment of California's economy long after real estate, construction and other industries fell apart.

    Now exports are faltering, too.

    New data from the U.S. census shows exports from California dropped the last two months of 2008 (6.3 percent in November and 13.7 percent in December). Although the full-year numbers were up, those last two months show how the recession is spreading around the globe, said Sacramento international trade expert Jock O'Connell.

    "It really started to fall off the ledge in November and continued in December," he said. It didn't help that the dollar began strengthening in late 2008, which made US goods costlier on world markets.

       Having covered the Tower liquidation in 2006, we're always interested in music-industry news. Here's something today from the Associated Press:

         Muzak Holdings LLC, the maker of elevator music, filed for Chapter 11 bankruptcy protection Tuesday.

         The company had heavy debt load, and it filed to try to refinance some of its debt. Its total debt is between $100 million and $500 million and it has assets of less than $50,000, Muzak said in a court filing.

       While the company is known as the creator of elevator music, its business is now more focused on creating playlists for use in retail stores, installing professional sound systems and other services.

    We often talk around the office about keeping an eye on those companies that are taking advantage of hard times by making bold acquisitions. The conversation is usually about real estate, but today we got a reminder that it applies to other industries, too.

     The company is Folsom trash firm Waste Connections, and it announced a major acquisition this afternoon. The company won't divulge the price until it makes a Securities and Exchange Commission filing Tuesday, but it's looking big. Last November it wrapped up a similarsized acquisition (as measured by revenue of the acquired assets) that cost $303 million.

    Waste Connections also announced higher fourth-quarter earnings and said it topped the $1 billion mark in revenue for 2008.

    UPDATE: The company's SEC filing this morning said it's spending $313 million on the latest acquisition. So Waste Connections has now committed more than $600 million in a few months to expansion.

    Not every state agency is furloughling employees today. Here's an excerpt from a press release from the Employment Development Department:

Providing a variety of vital job search assistance to an increasing number of unemployed workers, nearly 250 state Employment Development Department (EDD) field offices will remain open on their regular five-day-a-week schedule, the parent Labor Workforce Development Agency (LWDA) announced today. As previously released, EDD's Unemployment Insurance (UI) Branch will also remain open five-days-a-week.

    One of the things that struck me Thursday, as I was scrambling to write the story in today's paper about the problems at The Bee's parent, The McClatchy Co.: what a lousy month January was.

     Company officials told me they saw some modest signs of stability in the advertising market in December. But things took a nosedive in January. Now, keep in mind that the advertising business always slows in January compared with December, but this was significantly worse than expected.

     The point was driven home today, with the announcement that US unemployment jumped to 7.6 percent in January. Nearly 600,000 jobs disappeared, the worst one-month showing since 1974 (What a year that was - I got my driver's license and spent half the time waiting in line to buy gas, courtesy of the first oil embargo. Ah, the memories).

     Meanwhile, February is off to quite a start, at least around here: Today is the first day of state-worker furloughs.  My colleague Jon Ortiz reports that one of the unions filed a last-ditch bid to block the furloughs, but it was denied by the 3rd District Court of Appeal.

     Downtown and midtown Sacramento were fairly quiet at lunchtime today, although not quite the ghost town that some had predicted. The streets were fairly empty during my morning commute, but some of the restaurants were doing a decent business.

    We'll have plenty more about the furloughs, and the national unemployment numbers, in Saturday's paper.

    Here are some ugly new home-equity statistics from Zillow.com, the online real estate researcher:

    Almost 34 percent of all Sacramento area homeowners had negative equity at year end.

    Some 62 percent of all home sales in 2008 in Sacramento were at a loss; 39 percent were foreclosures.

    Home values in the region dropped a combined $40.8 billion in 2008.

    Want more? Go here for the report  and scroll down the left side until you find Sacramento.   

    I did a phone interview Tuesday with Joseph Dear, the incoming chief investment officer at CalPERS. Excerpts will run in a Question-and-Answer format in the paper sometime in the next few days, but I wanted to give you a preview.

     First and foremost, it doesn't sound like he's contemplating big, quick changes in the CalPERS portfolio. The fund is undergoing a regular strategic review of its asset allocation this spring, and he isn't willing to pre-judge that. He seems like more of a stay-the-course guy and told me:

      "When your portfolio is under stress, you need to be extra careful not to make changes just because you're under pressure."

     I asked him several times about CalPERS' well-publicized real estate problems, but he wouldn't talk about the issue much. But he does believe that real estate will be an essential part of CalPERS' portfolio going forward. The Washington State Investment Board, which he now runs, invests in real estate, too.

    Anyhow, look for the full interview coming up in the paper soon.

...and Incline Village, Granite Bay and everywhere else where million-dollar homes are the norm. A new report by MDA DataQuick shows a 42 percent decline in sales of $1 million-plus homes in California last year.

    The drop was 51 percent in Sacramento County, where a mere 105 homes changed hands at $1 million or higher. In Placer County, the decline was 45 percent, to a volume of 245 homes.

    LA County had more million-dollar sales than anywhere else: 6,046.Several counties had no million-dollar sales, including Yuba, Colusa and many of the counties in the northern reaches of the state (Trinity, Del Norte, etc.)

     Experts tell me the drop goes beyond the collapse in the housing market. The lack of available credit has been a huge factor.

   Got some feedback from readers about my story in Saturday's paper. I wrote about the big drop in fourth-quarter gross domestic output and quoted some economists talking about the increasing likelihood that the recovery won't begin until 2010 (instead of late 2009 as previously forecast).

   I was struck by the number of people who complained about us piling on the bad news. I certainly understand your criticism: Spreading doom and gloom just makes things worse because it will frighten people and businesses into hunkering down instead of spending or investing. That's a valid statement, and it's no doubt true to a certain extent.

   But that doesn't mean we can ignore the bad news. Or try to put a positive shine on it. This is what we're here for - to present the hard truth (as best and as honestly as we can) even if it makes folks uncomfortable at times.

    Some of you will probably find that defense self-serving or self-righteous. But that's how I feel about things.

    Again, thanks as always for your comments, whether they're sent directly to me, posted here or posted at the bottom of individual stories.

    Ouch. More layoffs, this time at Macy's. The department store chain plans to eliminte 7,000 jobs, including 1,400 by closing the regional headquarters in San Francisco.

    No word on any more store closings, however.

     Well, we're really slipping now.

     The nation's Gross Domestic Product fell at an annual rate of 3.8 percent in the fourth quarter, the government announced this morning. It wasn't as bad as some economists predicted, but one of our favorites, Sung Won Sohn of CSU Channel Islands, says that the real slippage was 5.1 percent.

  The difference: goods that were produced but are still sitting on shelves, unsold, are counted as growth. Take them out of the picture, and the economy shrinks by 5.1 percent, not 3.8 percent.

    If that isn't unsettling enough, he says the first quarter of 2009 will probably be worse.

    Ah well.

    Meanwhile, here's a footnote to our story about NEC Electronics closing a manufacturing line at its Roseville computer chip plant in 2010:

   Things could always be worse. Today NEC's parent in Japan announced it will eliminate 20,000 jobs worldwide. 

   It seems like we've been covering the delays at Elk Grove Promenade for years. This morning came an odd twist: troubled developer General Growth is searching for investors to help it finish the mall.

    Is this good news or bad news for the mall? My colleague Loretta Kalb and I are trying to figure this out. Clearly it's a sign of the depth of General Growth's problems. But it's not clear if anyone will fly to the Promenade's rescue.

    We'll have more in Friday's paper.