California Economy Recovering at Midyear
California’s economy is in the midst of a fragile recovery at midyear—recovering thanks to narrowing job losses and fragile thanks to a volatile stock market, according to Jack Kyser, chief economist at the Los Angeles County Economic Development Corp.
“Since we are in the initial stages of a recovery, so much depends on what happens with the stock market, especially for retail and apparel manufacturers,” said Kyser. “We have to pay attention to what type of impact this has on consumer confidence.”
The retail sector has been hard-hit and that has repercussions throughout the supply chain, according to Rob Greenspan, managing partner of the Los Angeles office of Moss Adams LLP. But Greenspan was more guarded about the state of the economy, despite a better-than-expected first two quarters.
“The economy is a mess,” said Greenspan. “Retail is not strong; therefore, it backs up on the manufacturer of garments and the fabric people. Having said that, the first six months of the year, in my opinion, have been better than anticipated for manufacturers.”
Kyser said that the apparel industry looks “interesting” because of potentially positive activity in retail and with suppliers.
“There’s been a rebound in certain segments where firms that have key inventory have had to restock,” said Kyser. “They are looking for stuff that is new, exciting and fresh and there will probably be improved trends in the second half of the year.”
In order to harness that potential, Greenspan suggests that manufacturers remain focused.
“For manufacturers, it’s the same as always,” said Greenspan. “You have to turn your inventory, be focused in your product line and keep your overhead in line, focusing on making money, and just being right with your product. Instead of trying to be all things to all people, figure out what you do best and do it.”
National security measures could also dampen the recovery for manufacturers, Kyser said.
“There are a lot of programs where, literally, firms have to go out and evaluate all aspects of their shipping and production,” said Kyser. “If you are using a contractor overseas, you have to make certain that everything is secure.”
And increased security could spell higher costs of overseas production, which could be a good opportunity for smaller domestic resources, he added.
“If you are a major apparel firm, that is a major project, but it could be good news for local manufacturers,” said Kyser. “If you are a smaller firm that doesn’t have the resources, it’s easy to fall back on domestic production.”
On the consumer side, Greenspan said that effects of the national disaster have taken a backseat to other, larger issues.
“I think what people are feeling are the effects of a recession, a lack of consumer confidence in all markets and therefore a lack of spending,” said Greenspan. “I think they are looking at everything—job security, investments and the world in general, which is just unstable. When things are unstable, people tend to get cautious with their money.”
Kyser downplayed the issue of consumer spending, illustrating that if people have jobs and feel comfortable, it will be business as usual with their spending. The problem, he said, is whether the consumer funds are tied up in the shaky stock market.
“If your money is tied up in a 401(k) plan, you can’t get your hands on it anyway, but there may be some shakiness if you get your statement and your assets are declining,” said Kyser. “People may look for other ways to save, such as bank accounts, where there is more of a guarantee. The question is whether people will siphon off disposable income for more spending.”
Both Greenspan and Kyser agreed that the current state of the economy is too tenuous to make sweeping predictions for the remainder of the year.
“Looking forward to Christmas, there are a lot of things we have to factor in,” said Kyser. “Every day, you have to get up and assess the economy.” —Darryl James
