California Apparel News

Economic gurus have been reading the tea leaves to decipher what next year will bring for California.They conclude the economy will be growing at a faster clip next year and that that growth will trickle over into 2005.

All this bodes well for the apparel industry, dependent on flush times to push people into clothing stores to do some serious shopping.

One more positive sign for the garment industry is a weaker U.S. dollar, whose value has consistently fallen over the past months against other currencies around the world. In the last year, the dollar has declined 18 percent against the euro, 14 percent against the yen and 12 percent against the Swiss franc. Some economists expect the dollar to continue its free-fall.

A weak dollar means U.S. goods are cheaper overseas, which helps California apparel manufacturers, said Christopher Thornberg, senior economist with the UCLA Anderson Forecast, a quarterly economic forecast done by the Anderson School of Management at the University of California, Los Angeles.

“The [apparel] industry started to take hits because of the rising dollar, which correlated to an overall decline in apparel production here in 1997,” Thornberg said. “I don’t think a lot of apparel jobs will come back, but what production is here will be helped because the dollar has been falling.”

With several financial indicators looking bright, economists are predicting California will see a 1 percent to 1.3 percent gain in total payroll employment next year. “This is coming about because of the favorable economic situation nationwide,” said Joseph Magaddino, chairman of the economics department at California State University, Long Beach, which does a periodic economic forecast for the Southern California region. “We think in 2004 and 2005, there will be improvement in the economy. The bad news is we don’t see much improvement in manufacturing of durable or non-durable goods in 2004.”

Magaddino noted that manufacturers have been reluctant to hire workers as productivity among American laborers has risen. In the third quarter of 2003, productivity rose at a 9.4 percent annual rate, the highest it has been in 20 years.

Yet outside of manufacturing, some areas will be adding jobs. The federal government next year will be beefing up its hiring in Southern California as the government bolsters security at the area’s airports and at the ports.

Customs inspectors are expected to be scrutinizing more imported goods next year. In addition, the Department of Homeland Security will be opening a new Central Examination Station in the Los Angeles area next year to inspect more cargo containers and shipped goods arriving at the ports of Long Beach and Los Angeles as well as at Los Angeles International Airport.

Chapman University’s economic outlook for the state next year is equally as rosy as UCLA’s. Esmael Adibi, director of the school’s Anderson Center for Economic Research, notes that personal income for California residents is expected to inch up 4.2 percent next year, from $119.7 billion in 2003 to $124.7 billion in 2004. At the same time, total taxable sales for the state will rise 3.7 percent next year, from an estimated $45.4 billion in 2003 to $47.1 billion in 2004.

Chapman University’s report was optimistic because the California Consumer Sentiment Index, which measures consumers’ feelings about the economy, increased recently to 96.7, up from 90.7 in the third quarter. Consumer confidence has been rising for the past nine months.

Gray clouds

Not everything on the economic front is upbeat. Economists have been worried that consumer spending, the glue that has been holding much of the economy together, will continue at its frenzied pace, sending out a shock of credit-card debt and bank loans.

“Consumer spending right now is a danger. You really want to be careful,” UCLA economist Thornberg said. “The argument here is that if you are spending money you don’t have and can’t control it, it slows down growth or you could go into recession.”

Economists would like to see businesses start making some capital expenditures. “This is the key to getting the U.S. economy back. The consumers have done an admirable job, but we have to expand business expenditure,” said Magaddino of CSU Long Beach. “So far, information technology and software have rebounded somewhat. We have to see how that unfolds next year.”

Rising mortgage rates will put a damper on several fronts. Mortgage companies and financial services will be downsizing next year, as fewer people need new mortgages or refinancing packages.

With rising mortgage rates, the UCLA Anderson Forecast notes that housing prices in California will begin to cool off.

Chapman University economists believe residential prices will appreciate only 3.2 percent next year, the only bright ray for prospective house hunters.