California Apparel News

The economy in Southern California will roughly mirror the national picture in 2004 as consumer spending, increased imports and exports, and a strong tourism sector help build momentum for economic recovery.

Hampering the recovery, however, will be the California budget deficit, rising natural gas prices and few, if any, gains in manufacturing employment.

That was the forecast from the Los Angeles County Economic Development Corp., which unveiled key points of its “Economic Forecast and Industry Outlook for 2004–2005” on Feb. 9 at the Coburn School of Performing Arts’ Zipper Hall in downtown Los Angeles.

On the job front, the LAEDC expects nonfarm employment in California to rise 0.8 percent in 2004 to 31,300 jobs. Many of these jobs will be in service industries such as health services, leisure and hospitality, but the group also expects retail to pick up an additional 6,000 jobs. The LAEDC predicts manufacturing employment will decline by 8,500 jobs during the same period.

The manufacturing sector will continue to struggle with import competition. But the weak dollar could generate interest in U.S. goods, helping to boost exports, which grew nationwide from $974 billion in 2002 to over $1 trillion in 2003 and are expected to grow another 5.6 percent in 2004, according to the LAEDC.

The report said tourists will take advantage of the weak U.S. dollar and come sightseeing— particularly in Southern California. According to the report, new rides at some of Southern California’s theme parks and the Inland Empire’s casinos could also spur tourism.

Housing will continue to be strong—particularly for downtown Los Angeles, according to the report, which points to the adaptive redevelopment of downtown office and manufacturing space into residential lofts. The Grand Avenue retail/residential project near the new Walt Disney Concert Hall will also stimulate sales in the area, the report said.

The LAEDC predicted that business spending will increase nationally as companies begin upgrading or replacing equipment that has become worn or outdated.

The Federal Reserve has kept interest rates at an all time low as the national economy picks up steam. But the Fed has left the door open to future increases.

Internationally, several key players are facing economic malaise. Mexico, the No. 2 trading partner to the United States, has been in an ongoing recession since 2001. The European Union has also struggled, slowed by Germany, which spent 2003 trying to climb out of recession. Japan appears to be heading toward recovery, but analysts are, at best, guardedly optimistic about the country, which has been on an economic rollercoaster ride for the past decade.

The big success story is China. The United States’ No. 1 trading partner saw its gross domestic product grow by 9.1 percent, despite the challenges of the sluggish economies in the United States, Europe and Japan and the severe acute respiratory syndrome outbreak, which cut off travel and tourism to China and Hong Kong last year. —Alison A. Nieder

Real Estate Stays Strong

California housing will continue to be in short supply in 2004 as new home construction eases back from 2003 levels and the population continues to grow. The median price of a house will increase about 13 percent this year, compared with 17.7 percent in 2003 and 19 percent in 2002, said Leslie Appleton-Young, vice president and chief economist at the California Association of Realtors, at the Los Angeles County Economic Development Corp.’s Feb. 9 event.

She noted that the median house price in Southern California was $380,270 in December 2003, up 20 percent from December 2002.

As prices go up, fewer people will have enough money to purchase a home. In 2003, only 27 percent of California residents could afford to buy a house. That will dip to 19 percent in 2004 as prices nudge upward.

“The disparity between the haves and have nots is growing,” Appleton-Young said. “First-time home buyers are being pushed out of coastal areas and inland to Riverside, San Bernardino, Palmdale and Lancaster.”

Out-of-sight housing prices create a drag on new business development as executives weigh whether their employees can afford to live in Southern California. “This happened in the early 1990s,” Appleton-Young noted.

In those days, however, Riverside and San Bernardino served as convenient bedroom communities that offered lowcost housing to workers who commuted to Los Angeles. Now those areas have their own diversified economies and workers living closer to their jobs.

Low mortgage rates, which have plunged to a 45-year low, have fueled the economy, providing homeowners who refinance with new sources of disposable income.

But the LAEDC said mortgage rates will increase slightly in mid-2004 and continue to grow through 2005 as the country’s monetary policy is tightened. Rates for a 30-year mortgage will inch up from 5.8 percent in 2003 to about 6.5 percent in 2004.

Sales of detached homes in California, which rose 13.5 percent in 2002 and 4.2 percent in 2003, will decline 2 percent in 2004, according to the LAEDC. —Deborah Belgum