California Apparel News

Levi Strauss & Co., the 147-year-old blue-jeans company, has weathered its share of economic twists and turns.

But so far, 2013 has been shaping up to be a good year. Recently reported third-quarter profits doubled to $57.1 million while sales inched up 3.7 percent to $1.14 billion.

Still, Chip Bergh, the San Francisco–based company’s president and chief executive, is concerned.

He believes the U.S. government shutdown, which started Oct. 1, could bog down consumer spending and put a crimp on the holiday season. “If this thing does get protracted, it will have a negative impact on the economy,” he told the Wall Street Journal.

Many other California apparel businesses have the same concerns. “If the shutdown goes on much longer, it is going to dampen things,” conceded Mark Lesser, president of Barbara Lesser Fabrics, a decades-old Los Angeles women’s sportswear company that survived the last recession.

Before the government shutdown, the U.S. economy was making measured gains recovering from the economic downturn that lasted from December 2007 to June 2009.

In the second quarter of 2013, the gross domestic product grew at an annualized 2.5 percent. That is much higher than the 1.7 percent economists had expected, and many are predicting GDP will grow 1.8 percent to 2 percent this year.

California’s economy also was shining bright before the shutdown. The state’s battered housing market was making a comeback with the median price in August of a Southern California home up 24.6 percent over last year. And the state’s technology sector is marching forward with new software developments and gadgets that are beefing up companies’ revenues. Apple Inc.’s total revenues were $156.5 billion in 2012, compared with $108.2 billion in 2011 and $65.2 billion in 2010. EBay Inc. saw its sales rise to $14 billion in 2012, compared with $11.65 billion the previous year.

This is all boosting taxable retail sales in California, which are forecast to grow 4.5 percent this year after rising 6.6 percent last year, said Robert Kleinhenz, chief economist of the Los Angeles County Economic Development Corp.

Kleinhenz noted that durable sales of items such as automobiles, washing machines and household goods are very strong. “New-vehicle sales activity is at its highest level in five years,” Kleinhenz said, noting that car dealerships are on track to sell 16 million new cars this year, compared with 14.5 million last year. “It’s a good sign for the economy.”

OPTIMISTIC CONSUMERS

With all these bright economic indicators, California consumers’ sentiment is at a six-year high, according to a study by the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif.

In the third quarter of this year, the consumer sentiment index, which was measured before the U.S. government shutdown, rose to 100.3 from the second-quarter reading of 93.9. It marks the first time since the first quarter of 2007 that it passed the 100 threshold.

“We attribute that to several factors,” said Esmael Adibi, director of the A. Gary Anderson Center for Economic Research. “The important one for California is the fact that home prices have jumped. There were so many people who were underwater, or if that didn’t happen, they lost all of their equity.

“The second factor is the stock market. What we have seen in the last couple of weeks [with a decline] is a bit of a hiccup. But, overall, people are feeling better about their retirement funds. Third, gasoline prices that were all over the place started to go down. And fourth is job creation. We are not generating jobs as fast as at the beginning of the year, but job creation is still growing.”

That was seen in the recent rollercoaster ride taken by California’s unemployment rate. In August, the state’s unemployment rate edged up for the second month in a row, to 8.9 percent. In July, it was at 8.7 percent.

In Los Angeles County, the unemployment rate in August rose to 10.1 percent, up from 9.9 percent in July.

However, earlier this year, California was outpacing the nation’s rate of job creation. One sector employing more people was the construction industry, which added 7,700 jobs in August. Yet it is still way below the pre-recession level of workers.

While housing is strong, manufacturing is weak. “In California, many of the jobs that went away were jobs in manufacturing, and they are not coming back,” said Jerry Nickelsburg, senior economist with the UCLA Anderson Forecast. “The growth in productivity in California is because companies are using machines, robots and software to make gains.”

He pointed out that today’s job skills of the 21st century are different from the 20th century. “If you are a warehouse person, your job was to walk down the aisles or drive down the aisles with a forklift, get boxes of garments and bring them up for shipment,” Nickelsburg observed. “That job may be gone due to a robot that is going up and down the aisles getting boxes, but now there is a job at that same company for someone to set up the software to operate that robot.”

In the apparel and textile industry, manufacturing jobs have been slipping away year after year. In August, Los Angeles County counted 49,500 jobs in apparel and textile manufacturing, compared with 52,700 a year earlier. However, job opportunities on the wholesale side of the business rose 1.8 percent during the same time period, to 22,700 jobs.

Retail job gains in California have been weak, rising only .02 percent this year.

HOLIDAY SEASON

If the government shutdown continues and Congress doesn’t raise the debt-limit ceiling to borrow more money, Uncle Sam could turn into the “Grinch that stole Christmas,” said Barbara Lesser Fabrics’ Mark Lesser.

If normalcy returns, holiday sales are expected to rise 2 percent to 4 percent, economists and retail analysts said.

The National Retail Federation predicted that holiday retail sales will grow 3.9 percent, to $602.1 billion, over 2012’s 3.5 percent holiday sales gain.

When it comes to retail imports, merchandise being shipped by sea and arriving at U.S. ports will be up 9.1 percent in October over last year. In November shipments should rise 3.4 percent, according to the NRF’s monthly “Global Tracker Report.”