Slow but Steady Growth in 2006
Rising real estate and gas prices may put a crimp in California’s economy
Got gas?
Got money to buy it?
Many consumers do not. That’s why economists are saying that high gasoline prices could put the kibosh on retail sales in the coming months as consumers feel the pinch of shelling out more money to fill their tanks.
Already, retailers are getting a whiff of what $3.30 for a gallon of gas can do to their business. In April, retail sales across the country barely rose, registering a 0.5 percent increase over the same time last year.
“The next three to four months will be disappointing ones for most retailers,” said Kurt Barnard, president of Barnard’s Retail Consulting Group in New Jersey. “First, there is the high price of gasoline. And, second, is the fact that too many retailers today continue to show the very same things they have been showing for years. There is nothing new under the sun. It’s blue jeans, blue jeans and more blue jeans.”
High prices at the pump are particularly harsh on Southern California residents who typically commute long distances by car to their jobs. “Gas prices are starting to bite, especially for low- and middle-income households. That is a concern,” said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp. “I think we have been warned they will stay on the high side. It will impact people like Wal-Mart and Target. And possibly Kohl’s, J.C. Penney, Marshalls and Ross [Dress for Less] will have to pay some attention, even, perhaps, Macy’s.”
Manufacturing rules
The high cost of petroleum is one of the few blips on California’s economic radar. The state is undergoing a steady boom.
Unemployment rates are 4.8 percent in Los Angeles County, 3.4 percent in Orange County, 3.9 percent in San Diego County and 4.1 percent in San Francisco. Even the San Jose area, which was greatly affected by the dotcom meltdown a few years ago, has seen its unemployment rate drop to 4.8 percent.
In Los Angeles County, jobs in professional services have grown. Education, health services, leisure and hospitality have been the fastest-growing sectors in the county.
While L.A.’s manufacturing industry is the weakest link in the job sector because it is not adding jobs, productivity for this sector is up, according to the UCLA Anderson Forecast.
Still, Los Angeles continues to hold the title of manufacturing capital of the United States. At the end of 2005, about 470,000 people were working in L.A. in various manufacturing jobs compared to Chicago, No. 2 on the list, where 396,100 were employed in the manufacturing industry. The largest manufacturing sector in Los Angeles County still is apparel and textiles, which employed an average of 61,500 at the end of last year. Right on its heels is the computer and electronic products industry with 60,500 employees.
But every year, L.A.’s manufacturing industry sheds a few thousand jobs. In 2004, about 483,600 people were employed by manufacturers.
Open house
The only economic uncertainty hovering around like a hungry buzzard is the future of the real estate market. Christopher Thornberg, a senior economist with the UCLA Anderson Report, predicts that housing prices will hit a plateau later in the year, which could persist for an extended period. “The only debate now is how hard a landing there will be and what impact it will have on the economy,” Thornberg said.
The UCLA economist said as many as 200,000 jobs could be lost in the construction sector as residential construction and remodeling slow dramatically.
Already, single-family home sales are down in Los Angeles County, with unit sales dropping 17.9 percent in February compared to the previous February.
Prices, however, continue to climb.
“People expect that by year end, prices will still be up but not at the levels they have been rising,” Kyser said. “We are seeing bubblettes in the housing market, such as downtown San Diego. The condo market there has definitely slowed, and there are a lot of for sale signs in the windows. And Riverside County people are getting nervous. Their unsold inventory of single-family homes is starting to grow.”
With gas prices affecting consumers and the housing market facing uncertainty, experts predict that Southern California’s economy will cool off this year with gross domestic product increasing only 3.6 percent compared with 4.1 percent in 2005 and 4.9 percent in 2004.
