California Economy Predicted to Improve Next Year and Grow Modestly

California’s economy next year should be on a positive path, growing slightly more than the U.S. economy as the housing market and other industries forge ahead and grow, according to a recent economic forecast released by the Los Angeles County Economic Development Corp.

California has also been adding jobs at a faster rate than the rest of the nation. But the state has a lot of territory to recuperate, Between December 2007 and January 2010, California lost 1.3 million jobs. About 70 percent of those jobs have been returned to the economy, the report said.

Jobs growth in the state should increase 1.8 percent with another 2.1 percent gain in 2015, according to the LAEDC’s “2014–2015 Economic Forecast & Industry Outlook,” released on Feb. 19.

“Last year, we added 235,000 jobs,” said Robert Kleinhenz, the LAEDC’s chief economist. “We expect to add a little more than 260,000 jobs in 2014. Of those, 50,000 will be in leisure and hospitality, 40,000 will be in health services, another 40,000 will be in construction, and 36,000 will be in the retail trade.”

However, jobs in Los Angeles County’s apparel manufacturing sector will continue to shrink as they have been doing since the 1990s, when many clothing companies shifted production to Latin America and Asia.

In 2013, apparel manufacturing jobs in the county shrunk 2.3 percent from the previous year as the industry lost 2,500 positions. That brought total employment in the apparel manufacturing industry to 43,000 wage and salary workers in Los Angeles County, still making this area the largest hub in the United States for making clothes.

On top of mid-size factories, the LAEDC calculates that in 2011 there were nearly 7,900 independent contractors working in Los Angeles and Orange counties, some so small that their employment numbers don’t get counted.

One area of growth in the local fashion industry is the county’s apparel wholesaling sector, which added 742 jobs for a 3.4 percent jump to 22,700 workers. “Southern California employs the largest number of apparel workers in the United States and is one of the few places in the U.S. where apparel continues to be manufactured,” the LAEDC economic forecast noted. “Although production of most apparel items has largely shifted to lower-wage countries in Latin America and Asia, high-end apparel that requires strict quality control and specialized skills or processing tends to be manufactured locally.”

That was seen recently during the televised coverage of the 2014 Winter Olympics in Sochi, Russia, where the U.S. Olympic team marched at the opening ceremonies wearing cardigan sweaters designed by Ralph Lauren and knitted at the Ball of Cotton sweater factory, located in Commerce,

Calif. The cardigans, which were retailing online, have already sold out. But the sweaters are popping up on eBay with starting prices at around $1,000.

California turns golden

Even though California was one of the hardest-hit states during the recession, it has been making gradual improvements to its fiscal health.

The LAEDC forecasts that the gross state product will grow 2.8 percent this year (compared with 2.7 percent for the country) and rise 3.5 percent in 2015 (compared with 2.9 percent for the U.S.)

That will have a major effect on the state’s unemployment rate, which has fallen from 12.4 percent in 2010 to 8.3 percent last month. By 2015, the unemployment rate is expected to decrease to 7.1 percent. “But we still have some ground to make up,” Kleinhenz said, noting that the average long-run unemployment rate in California is 7.5 percent.

One of the strongest recuperating sectors in the state’s economy has been the construction industry, which was hard hit during the recession.

At its peak in 2006, 933,700 people were employed by the industry. But by 2010 the industry shed 40 percent of its workers with only 559,800 people working in the housing sector. Construction payrolls expanded modestly in 2011 and 2012 but made major inroads in 2013 with a 5.3 percent boost to employment, rising to 620,200 jobs. Still, employment is only at 34 percent of the height of the construction boom.

Even though the real estate market has cooled slightly over the last six months, the LAEDC predicts that new home permits will rise 41.4 percent in 2014 over last year and see another 35 percent improvement in 2015. Still, percentages don’t tell everything. Because there were so few permits pulled during the recession, there is a lot of ground to make up. “We are still looking at permit levels well below the long-run permit levels,” Kleinhenz said.

California has always been a major force when it comes to international trade. The largest port complex in the United States is located in the Long Beach/Los Angeles area, where the nation’s two largest ports sit side by side. About 40 percent of all cargo-container traffic arriving in the United States lands here or leaves here.

Last year, two-way trade in California totaled $596.4 billion, a new annual record. Last year, trade rose 3.1 percent after seeing a 3.5 percent gain in 2012.

The number of cargo containers arriving at the Port of Los Angeles and the Port of Long Beach was up 3.4 percent last year to 14.6 million 20-foot containers, also known as TEUs. “We expect another 4.5 percent uptick in container activity at the ports, which will put us into the 15 million–plus range of containers, which is a noteworthy development,” Kleinhenz said.

Los Angeles County growing

The number of jobs in Los Angeles County grew 1.6 percent last year, which was a tad slower than the state’s year-over-year 1.7 percent growth rate.

Still, just about all sectors of the county’s major industries were employing more workers. The largest gains were seen in leisure and hospitality; professional, scientific and technical services; healthcare and social assistance; and construction. These groups accounted for 73 percent of the jobs created in the county in 2013.

Next year, jobs growth should inch up 1.2 percent. By 2015, nonfarm employment should surpass 4 million jobs, but it may not be until 2016 or 2017 before it reaches the 2007 peak of 4.12 million jobs.

U.S. economy marches forward

The U.S. economy had a lot of headwinds to deal with last year with federal budget cuts, known as sequestration, taking effect and a more than two-week government shutdown in October that stifled economic growth and churned up uncertainty, which is never good for business.

The U.S. economy is predicted to see solid but modest growth in 2014 with the gross domestic product, or GDP, inching up 2.5 percent after a 1.9 percent gain in 2013.

The national unemployment rate has come down faster than many predicted, from 7.9 percent in December 2012 to 6.7 percent in December 2013. It currently stands at 6.6 percent.

With consumers more upbeat about the future, many dipped into their savings last year and increased use of their credit cards to make those big-item purchases that had been put on the back burner. Many replaced aging cars or bought new refrigerators, stoves or furniture.

Last year, consumer spending on durable goods rose 7 percent over 2012. That’s a positive sign since consumer spending accounts for 70 percent of the nation’s gross domestic product.

The LAEDC predicts that consumer spending will continue to be in positive territory over the next two years.