California Apparel News

The U.S. and California economies are slowing down, according to the UCLA Anderson Forecast titled “The Year of Living Dangerously,” which was released Sept. 26, but the slowdown has bright points that other economies would envy.

Pillars of the California economy, such as technology and construction, remain strong, according to the report from the University of California, Los Angeles. Unemployment remains low at 4.1 percent in California.

“As long as consumption remains high, we’ll avoid recession,” David Shulman wrote. He serves as a senior economist on the forecast, which is released every quarter.

But there are a number of factors undercutting a strong economy. The Trump Administration’s tariff policies have created an unstable environment for exports and for business investment, Shulman wrote.

Another report author, Jerry Nickelsberg, the director of the UCLA Anderson Forecast, said that the Tax Cuts and Jobs Act of 2017 and the stimulus passed in the Budget Act of 2018 gave a jolt to the economy.

“As we move into 2020, we see effects of the federal stimulus wearing off. It takes a toll on business,” Nickelsberg said. “The uncertainty with respect to economic policy, including trade policy, leads to less business investment, which ultimately means lower growth in 2020.”

While Nickelsberg forecasted a slowdown, he also foresees a rally. “We expect a return of 2 percent growth in 2021,” he said, but there are pitfalls in the current economic environment.

“If you start growing more slowly, it means that you don’t have far to go before you flip over to the negative side. It might happen in terms of trade wars, not just with China but with threatened tariffs with the EU,” Nicklesberg said. “We have seen some turmoil in financial markets and money coming in from abroad looking for a safe haven. That has the potential of creating more fragility.”

Consumers have been anxious, according to a survey that noted confidence slid by 9 points in September. The decline was identified in the Consumer Confidence Index, which noted that this movement could erode expansion, said Lynne Franco, director of the nonprofit Conference Board research group, which organizes the index.

“Consumers were less positive in their assessment of current conditions, and their expectations regarding the short-term outlook also weakened. The escalation in trade and tariff tensions in late August appears to have rattled consumers,” she said. “However, this pattern of uncertainty and volatility has persisted for much of the year, and it appears confidence is plateauing. While confidence could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.”

A slowing economy comes as no surprise. In June, the UCLA Anderson forecast charted slower growth for the U.S. economy. Then, the forecast predicted that gross domestic product would rise only 2.1 percent this year compared to 3.1 percent in 2018. There is little change for the national outlook in the September forecast.

In that report, a modest national growth rate runs into 2020 with the slower growth projected to influence California. This projected sluggish environment will result in slower employment growth. The forecast predicted that total employment growth rates will be 0.8 percent in 2019, 1.7 percent in 2020 and 1.2 percent in 2021. This slower environment might be balanced by growth in personal income.

In California, real-personal-income growth is forecasted to grow 1.3 percent in 2019, 1.7 percent in 2020 and 1.9 percent in 2021.The growth is reflected in the tight labor market in high-wage occupations such as technology, Nicklesberg wrote in the California forecast that he co-authored with William Yu, an economist who works with the UCLA Anderson Forecast.

While job growth is strong in construction, technology and healthcare, it has been weak in the wholesale trade and retail segment. Job growth in those sectors has declined to under 1 percent.

“Bricks-and-mortar retail has been declining,” Nicklesberg said. “We’ve seen negative job growth in California in terms of retail.”

As e-commerce and digital retail continue to grow, Nickelsberg said that services will remain strong.

“There are aspects of bricks-and-mortar retail that won’t go online, such as the purchase of gasoline. It’s difficult to get a haircut online,” he said. “We’re expecting an increase of online sales, particularly with commodity goods.”

Another segment of the forecast that might prove a sore point to Californians is the housing forecast. Homebuilding will see a decline of 11,000 units by the end of 2021, leading Californians to continue grappling with the state’s housing crisis.

The recent UCLA forecast also devoted space to the growth of the tech sector and how it has affected regional economies. Yu, the author of this section, noted that the tech industry is a driver of local economies and its high wages will push forward job growth ranging from low-skill positions to executive jobs. Yu said that in order to keep and attract tech jobs, municipalities should invest in education and a high quality of living for their areas.

Technology is a California strong suit, with two of the state’s areas—San Jose and San Francisco—placing among the top 10 cities for the highest wages in tech. The report quoted a study from Occupational Employment Statistics, a venture of the Bureau of Labor Statistics, which noted that 17.2 percent of jobs in San Jose are tech jobs and in San Francisco 8.3 percent of jobs are related to the industry. A median wage for a tech job in San Jose is $120,000, while a median wage in San Francisco is $112,000.

Los Angeles also boasts a large cluster of tech jobs, the report notes, but it doesn’t have the highest wages. However, the forecast noted that an outlook for growth was good for Los Angeles tech jobs. Technology giants Amazon, Google and Netflix have been expanding operations in Los Angeles, according to media reports.