California Apparel News

Things will get worse before they get better.

That’s the word from economists who are crunching the financial numbers and government statistics to see when the United States might emerge from this economic quagmire.

They predict that unemployment numbers will continue to creep up by at least 1 to 2 percentage points in the next 12 months, leaving retailers with a challenging landscape that probably will improve slightly during the holiday season.

Britt Beemer, a researcher who tracks consumers’ buying habits for his Charleston, S.C.–based America’s Research Group, predicts that retail sales won’t turn around until Labor Day 2010.

“I think everyone is being pretty frugal these days,” Beemer said.

Every other month, he and his crew interview 1,000 consumers across the country. His March survey shows that 56 percent of households earning under $50,000 annually were going to spend less this year than last year, while 6 percent said they were going to increase purchases.

Ironically, those numbers shifted in a more conservative direction for households earning more than $50,000 because devastated stock portfolios were taking a toll. Among those households, 72 percent said they would be reining in their wallets this year while only 2 percent said they would fire up their shopping trips to the mall.

“Over half of America tells us they will not be able to get out of debt until they go through one more income-tax season, and that puts us through summer 2010,” Beemer said, noting that Labor Day 2010 could mark a significant turnaround point for retailers. “People are buying essentials: food, tires and appliances if they break down. They are buying things that are necessities, which is why Wal-Mart continues to get big numbers—because they sell all those essentials.”

The National Retail Federation is a little more upbeat. Earlier this year, it predicted that national retail sales—excluding auto sales, restaurants and gas stations—would improve by 3.6 percent during the fourth quarter of this year. But still, retail sales were expected to plummet 2.5 percent during the first half of 2009. “Most of the consumer behavior we saw in 2008 will continue well into this year,” said NRF Chief Economist Rosalind Wells.

High unemployment

Retail sales will trudge through tough times due to a nagging unemployment problem that won’t see any improvement until early 2011. Jerry Nickelsburg, the senior economist with the UCLA Anderson Forecast, said the recession is going to be deeper and longer than economists had predicated.

In California, Nickelsburg said, the economy will be weak for the first three quarters of this year and see no growth in the fourth quarter. Things won’t pick up until next year, with normalcy not being achieved until the end of 2010.

“As we start growing out of this, it is going to be slow growth for a while,” Nickelsburg said. “Consumers won’t come back as rapidly as before. Investments coming from increased savings will have to pick up the slack. But there is a little bit of a lag there.”

Consequently, even if the economy improves slightly, employers are expected to hold back on hiring until they are absolutely sure everything is back on track. Nickelsburg foresees California’s unemployment rate rising to 11.9 percent (from its current 10.5 percent) by the second quarter of 2010 and averaging 11.7 percent next year.

Currently, California’s unemployment rate is the highest it has been since April 1983. Last year, February’s unemployment rate in the state was a more-moderate 6.2 percent.

In Los Angeles County, the unemployment rate stands at 10.9 percent, compared with 5.9 percent last year. In the Inland Empire, which encompasses Riverside and San Bernardino counties, the unemployment rate jumped to 12.2 percent in February, compared with 6.7 percent during the same period last year.

No one industry has been spared. Retailers, manufacturers, car dealers, mortgage companies, construction concerns and high-tech industry have taken the brunt of the economic decline. Retailers across the country were buoyed by slightly better-than-expected sales results in the first two months of this year, but March took its toll, with purchases declining 1.1 percent.

Southern California’s economy has been particularly hard hit because subprime-mortgage companies and housing construction made up a good portion of the area’s economy. Layoffs in those areas, which started the economic downward spiral, have kept consumers out of the stores.

Federal hand up

Most experts agree that the economy will start to see signs of life by the end of the year. Economist Jack Kyser of the Los Angeles County Economic Development Corp. noted that various federal economic stimulus funds and state and local measures to improve transportation and schools will kick in by the middle to later part of this year.

Starting July 1, Los Angeles County will increase its sales tax from 9.25 percent to 9.75 percent. The increase was approved in November by voters, who passed Measure R, which helps pay for various transportation projects that include extending the Los Angeles subway system to the Westside of Los Angeles and expanding light-rail transportation to the San Gabriel Valley.

Also in November, Los Angeles voters approved more than $10 billion in bond measures to expand community colleges and local schools. Other communities around Los Angeles set a precedent by approving 90 percent of the school bond measures on the ballot. “There will be work in heavy construction,” Kyser noted.

With so much money coming in, it would be hard not to see a fairly successful recovery hit the Southland. “We believe by the end of the year, the economy should be in much better shape than what it is now,” said Ismael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University. “There is a lot of money coming from the federal government. I joke that if you throw that much money at a dead body, it starts moving.”