California Apparel News

The U.S. economy is expected to cruise along at a moderate speed this year after whizzing past the speed limit last year.

One major change this year are income taxes and whether people are paying more or less under the Trump administration’s revised tax code, implemented under the Tax Code and Jobs Act of 2017. This bill eliminated personal exemptions and certain itemized deductions but doubled the standard deduction and adjusted tax brackets. State and local tax deductions were capped at $10,000 a year.

This is the first year the full effect of the revision is being felt by individuals, who were wondering whether they would be receiving a bigger refund or paying more in taxes than before.

So far, the results are mixed. The Tax Policy Center predicted that 82 percent of middle-class workers (described as households making $49,000 to $86,000 a year) would receive a tax cut averaging about $1,050. About 9 percent of middle-class households were expected to pay more and the rest were expected to pay the same in taxes.

But hard hit were wealthier households in states including California, New York, New Jersey, Connecticut and Pennsylvania where state, local and property taxes are high and people generally earn higher wages than in the rest of the country.

In California, many people had sticker shock after visiting their tax preparers and finding they needed to write a check to the Internal Revenue Service instead of getting a refund. This is due in part to withholding tables being adjusted to reflect the lower tax rates, but these changes did not take into account other tax-law updates such as the reduction in itemized deductions.

For retailers, this tax year is, well, taxing. First, tax refunds are arriving two weeks to four weeks later than normal because of the 35-day government shutdown that ran Dec. 28, 2018, to Jan. 25 this year.

Second, consumers may be spending their tax refunds on things such as vacations or putting their refunds into savings accounts or paying down debt. “Because refunds are 15 to 30 days later than normal, retailers have not felt the impact of those refunds as early as last year,” said Britt Beemer, founder of America’s Research Group, which polls 1,200 consumers a week to take the pulse of their retail-spending attitude.

The good news is that if consumers decide to go on a vacation spree, shopping is always part of that fun mix of exploring and spending time away from home. “For Americans, 26 percent of their time on vacation is spent on shopping,” Beemer said. “That is even more than the Japanese, who spend 25 percent of their time shopping when on vacation.”

Jack Kleinhenz, the chief economist for the National Retail Federation, said an NRF survey in February found that 50 percent of consumers were planning to put their tax refunds into their savings accounts and 34 percent said they were planning to pay down debt. “My hypothesis for this is that we had a volatile stock market at the end of last year and earlier this year,” Kleinhenz said. “People pulled back spending in December and that continued in January.”

Consumers are still being guarded and putting money away to cope with any financial headwinds.

That was seen when the U.S. Census on April 18 released data on March retail sales. In short, online sales did really well. They were up 9.2 percent over last year. Established bricks-and-mortar sales were challenged. Clothing and clothing-accessory stores saw sales dip 2.6 percent from last March. Sporting-goods stores continued in negative territory with sales sliding 10.8 percent over last year.

Much of this is because Easter and other religious holidays fall in April this year as opposed to March last year.

Challenging retail

Still, retail sales overall are expected to be slightly better than last year, Kleinhenz said, with the NRF sticking to its forecast of a 3.8 percent to 4.4 percent rise in sales to $3.8 trillion in 2019.

But shopping malls will continue to face hurdles as consumers spend more time on their computers placing orders for everything from bedroom furniture to swimsuits. “I do see the malls being more and more challenged,” Beemer said. “During the holiday season, only 19 percent of families shopped the malls, which is an all-time low. Those people under the age of 35 that used to live in malls as kids are refusing to go back and buy their Abercrombie & Fitch clothes. Now, it is a whole different story.”

Shoppers complain mall stores don’t vary that much from shopping center to shopping center and it takes too long to park their car and walk into a shopping mall than parking at a big store with an adjacent parking lot. “The consumer is going through a big sea change, and when they come out of this tidal wave you are going to see another set of retailers go away,” he noted.

Beemer predicts more retailers will be going out of business in the next 24 months than in the last 24 months.

California cooling

Economists are expecting a bit of a slowdown in the U.S. and California as the country’s gross domestic product is predicted to rise about 2 percent this year compared with 2.9 percent last year.

California’s unemployment rate will probably rise slightly to 4.5 percent later this year from its 4.2 percent rate in January. But it will dip back down again in 2020 and 2021 to 4.3 percent.

One major change for California this year will be seen in housing prices, which won’t be experiencing their usual ride to the sky as in past years. Single-family-housing prices went up 6.3 percent in 2018,” said Raymond Sfeir, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange, Calif. “Housing prices won’t exceed a 3.1 percent increase this year, and in the first quarter they were up only 1.4 percent.”

Many consumers gauge their personal wealth on the value of their homes. But homeowners won’t be losing any equity in their houses, just less of a year-over-year big jump. “We don’t see any recession this year at all,” Sfeir said. “Interest rates have stabilized, which is a plus for the economy as a whole.”