Economy Struggles, Consumers Begin Spending Cautiously
In the first portion of the fourth quarter of the year, the economy has tumbled into a recession, but after reports of unemployment increasing and consumer confidence decreasing, the downturn was to be expected, according to Jack Kyser, chief economist at the Los Angeles County Economic Development Council.
Kyser said that while the economy was already on a downslide before Sept. 11, the events of that day had a hugely negative effect that can already be felt.
“What you had was a third-quarter estimate where the gross domestic product was down,” said Kyser. “That was made with estimates for September. Sept. 11 was a transforming day, with huge impact on [the industries of] travel, transportation, tour, apparel and the media.”
Kyser also said that in the midst of the depressed economic conditions there is still some visible consumer activity.
“You do see signs of life,” said Kyser. “I was at a local shopping mall that caters to a blue-collar [demographic] and people were buying.I think people are ready to move forward; they want permission to have some fun again.”
Kyser said that consumers are prepared to start spending, even if cautiously, but underscored that some of the reports on the economy can be misleading.
“A lot of people just saw October [overall] retail sales numbers, and on the surface everything is good again, but it was people buying cars [that kept the numbers high],” he said. “People in that industry say they are nervous because they are borrowing sales from next year and, in the coming year, that industry will be in trouble.”
Other major industries are also in trouble, but according to Kyser, the future of the industries and the economy overall depends on each industry’s ability to take proper action. Kyser used the apparel industry as an example.
“I have to say the value retailers, like Wal-Mart, Target and Costco, are striking the right nerve with consumers who are looking for value and practicality,” he said. “The upper [-end] retailers are struggling. They are failing [to take proper action]. In the middle, the retailers like Robinsons-May are all looking the same. They need to take risks, but the question is, do they have the financial will to take these risks?”
Kyser predicts that this coming holiday season will be muted in terms of retail sales but that a positive change may be on the horizon after the season is over.
“Beyond [the] holidays, we’re looking for a modest recovery to start about the middle of next year,” said Kyser. “There will still be certain retarding forces, because you still are dealing with over-capacity in certain industries.
In attempting to reverse the current economic downturn, Kyser said that the focus has to be on pragmatic efforts by consumers, retailers and government.
“There’s no question that 9/11 tumbled us into a recession,” he said. “The question is, how do we get out of it?”
One of the major concerns in moving forward is airport security, Kyser said. The struggling airline industry is affecting industries that have to transport goods, as well as industries that depend on people flying from city to city.
On the governmental level, there is a need for economic relief for small- to medium-sized businesses and low-income consumers, Kyser said, noting that in California, the majority of the businesses are not large. However, the shaky economic situation has also impacted government offices.
“We have to see how effective government programs are [in helping small businesses],” Kyser said. “In the state of California, you have a budget deficit for the state. They’ve started to whittle away at it, but a lot of city and county governments are very nervous.”
Communication is key, Kyser said.
“You have to keep your wits about you, communicate with both suppliers and customers, think ahead so when the recovery starts, you can take advantage and position your firm to go forward.”
Also, now is a crucial time for businesses to join industry groups and participate in current efforts to bolster the business images of their local communities, according to Kyser.
“We do know the state went into the last quarter very weak and preliminary indications are that the [economy] will remain weak,” Kyser concluded. “We have to watch to see when people will get their nerves back.”
