California's Economy Won't Be on the Mend Until 2010

California is headed for tough financial times in 2009 with a bottoming out toward the end of the year and then a slight improvement in 2010.

That was the message from the Los Angeles County Economic Development Corp., which released its 2009–2010 economic forecast and industry outlook on Feb. 18 at the Marriott Hotel in downtown Los Angeles.

“As 2009 began, California was in the throes of a serious recession, and the economic news during 2009 will be mostly bad,” said Nancy Sidhu, the LAEDC’s chief economist. “The unemployment rate will average 8.7 percent during the year and will run up to 9.5 percent in 2010.”

California’s housing industry will continue to be challenged, especially in the inland areas of the state, according to the LAEDC.

In Southern California, the LAEDC believes that some of the hardest-hit areas will be retailers and manufacturers. Jack Kyser, one of the LAEDC’s principal economists, noted that retailing in Los Angeles County is expected to shed 25,000 jobs in 2009 while manufacturing will lose 21,000 jobs and construction will be down 18,000 jobs.

At the end of 2008, there were 52,600 people employed in apparel manufacturing in Los Angeles County, compared with 53,900 at the end of 2007. Textile manufacturing in the county employed 8,900 people at the end of 2008, compared with 9,100 people a year earlier. Apparel manufacturing is expected to eliminate 1,100 jobs in 2009.

“There will be more store closures and more retailers pruning weak-performing stores,” Kyser said.

Economists estimate that approximately 10 percent of retailers will be restructuring, filing for bankruptcy or closing, with a retail downturn lasting as long as three years.

“It is going to be a difficult year,” Kyser said. “Retailers will be buying smaller amounts.”

That means Los Angeles County taxable retail sales should drop 5.9 percent in 2009 after seeing a 2.1 percent dip in 2008. The one upside to this is that more stores will be looking for unique apparel items to attract reluctant customers into their businesses. That means creative minds and quick-turn artists who can get goods to market quickly will thrive.

International trade activity at the region’s ports and airports will continue their decline. Container volumes at the Los Angeles/Long Beach port complex peaked in 2006, when 15.76 million 20-foot containers were handled. In 2009, that number is forecast to be 12.4 million containers. The decline will affect everyone from truck drivers and longshore workers to warehouse employees and the industrial real estate market.

On the housing front, Los Angeles County is expected to see 11,500 units start construction, compared with the peak of 26,348 units permitted in 2006. In addition to the problem of foreclosed homes, the area will be experiencing an apartment glut.

In commercial real estate, the county’s office vacancy rate at the end of 2008 was 12.2 percent and growing. Retail vacancies were also expected to climb.

However, not everything was doom and gloom. Economists noted that the area’s aerospace sector should hold fairly steady, with more orders expected for Boeing’s C-17 military cargo plane built in Long Beach, Calif.

Major public and private construction projects will provide a significant boost by the end of 2009 with help from the federal government’s infrastructure construction program.

And downtown Los Angeles’ “L.A. Live” entertainment complex, located near the Staples Center, will see a new convention-center hotel opening in early 2010. —Deborah Belgum