The economy is improving, but it will never go back to the way it was - deal with it

Here's a chart from the Federal Reserve that has an intimidating name - Coincident Economic Activity Index - but which is quite helpful in understanding the state economy. At a glance you can see the peaks and valleys going back to the 1970s - a perfect summary for folks who normally glaze over government reports. This one combines four state-level indicators - employment, average hours worked in manufacturing, unemployment rate, and salaries - into a single, easy-to-digest statistic. The index peaked out in February 2008 at 154.88, hit bottom in November 2009 at 143.42, and has been gradually increasing ever since. It now stands at 152.91. Over the last three months, California's growth has been hovering in the 0.5 percent range - near the top of all states. Which is not to say that California is out of the woods by any means. And it's not to say that economy activity doesn't vary a lot by region (the Bay Area being the strongest area in the state). It is to say, however, that California is moving along at a reasonably decent clip - certainly far better than many of the naysayers would have you believe. I pick up this notion in this week's Business Update on KPCC with Steve Julian:

Lacter: The point is, the recovery is still chugging along, which is nothing short of miraculous considering the dysfunction that's going on in Washington - and yet very few people have been paying attention. If anything, the focus is on the large number of jobs that have not come back since the recession, and how many years it will be before California supposedly gets back to where it was. But it's the wrong way of looking at the economy because things are never going to be the way they were.

Julian: Not in five years?

Lacter: Not in five years, not in 25 years - and that reality is still not being accepted. Look, the recession has forever changed things. You see it in the way companies are hiring. You see it in the way consumers make purchases. And it's not just the restructuring of finances - it's the restructuring of how business works. Now, we don't really know how a lot of this is going to play out, and some things are obviously worrisome, starting with the 700,000 people in California who have been out of work for over a year. But here's another reality: many of these folks will never return to the kind of work they used to do.

Julian: Is there anything that gilds the edges of this new reality, or new normal?

Lacter: Yes. Consumers are being a lot more careful about the amount of debt they pile up, and that's certainly a good thing. Businesses are learning to do more with less, and that ultimately will be a good thing. And the industries that do seem to be thriving in California - I'm thinking about information technology and entertainment - are generally high-paying, and they attract a high-skilled workforce - that's also good. But the bottom line is that the economy is simply not the same, and it's time to deal with it.