Retail Spending Expected to Keep L.A.’s Economy Afloat

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Retail Spending Expected to Keep L.A.’s Economy Afloat

By DANNY KING

Staff Reporter

Consumer spending will continue to lead L.A.’s economy through next year as shoppers shrug off increases in mortgage rates and a stagnant job picture, according to two economic forecasts.

L.A. County retailers will ring up $79.2 billion in sales this year, up from $74.9 billion in 2002, according to a report being released this week by the Los Angeles County Economic Development Corp.

The 5.7 percent increase would trump the 4.6 percent increase projected for the state and the 4.3 percent increase in L.A. County a year earlier. By 2004, the LAEDC projects, retail spending will be just shy of $90 billion.

A slower but still significant refinance boom and a growing informal economy that’s heavily reliant on cash transactions will support spending. But the influx of discount retail operations will result in a “pruning” of mid-range competition, the LAEDC forecast said. This is likely to have a modestly negative impact on local employment, especially at older shopping centers.

“With any expansion, you’re going to see some attrition somewhere,” said Aubie Goldenberg, a partner in the retail group of Ernst & Young.

The trend has already started. In March, Menomonee Falls, Wis.-based Kohl’s Corp. opened 28 stores in Southern California seven in Los Angeles County. Meanwhile, Wal-Mart Stores Inc. is expected to add to its 10 L.A. County stores next year, despite opposition from some communities as well as the challenge of finding the 20 to 25 acres in the county necessary for a store.

Job optimism

The UCLA Anderson Forecast has projected that 2003 will show a net loss of jobs. But in closing out the year with an increase in payroll jobs, L.A. will see the first quarterly gain since the April-June period in 2002.

Between February and August, L.A. County lost 24,000 payroll jobs, according to the report. Manufacturing specifically within the apparel industry is the primary area of job decreases, representing a loss of 10,000 jobs in the past three months alone.

Both Jack Kyser, chief economist of the LAEDC, and Christopher Thornberg, senior economist at UCLA Anderson Forecast, agreed that a thriving informal economy of domestic workers, day-laborers and independent contractors working off payroll would cushion the blow of any job losses.

Thornberg’s report found there were about 1.2 million informal workers in Southern California in August, an increase of more than 200,000 from the year earlier period. In all, informal workers make up more than 14 percent of the region’s total workers, up from 12 percent three years ago, according to the Anderson report.

The UCLA forecast said the downward trend in payroll jobs that began late last year will start to reverse, albeit modestly. It projected county payroll jobs would increase by 64,000, or about 1.5 percent, next year, with another 83,000-job increase in 2005.

“You’ll see L.A. rebound not aggressively, but decently,” said Thornberg. “The driver is going to be the slow increase in the U.S. economy overall.”

Projections of the turnaround in employment, coupled with increases in retail spending of 6.6 percent and 6.2 percent in 2004 and 2005, respectively, are attainable, according to Goldenberg.

“If we get minor inflationary pressure, that’s not huge growth,” he said. “If you consider any increases in population growth coupled with inflation, it certainly appears to be an achievable forecast.”

Most of the job growth in Southern California will occur in the professional service, educational and health care sectors, according to the UCLA report.

“The consumer has been buy, buy, buying all along here, so we’re not looking for strong growth in retail (employment),” said Thornberg. “It’s been going full speed all along now, so there’s no recovery needed.”

Kyser agreed. “You’ve had the refi and cash out boom on the part of consumers,” he said. “You also have a lot of independent contractors and people starting their own businesses, so there’s a lot of disposable income.”

Outside of L.A. County, retail spending in fast-growing Riverside-San Bernardino counties, projected to total $34.2 billion in 2004, will overtake Orange County for the first time next year, according to the LAEDC. Riverside also had the highest percentage payroll job growth in the past three years out of the 50 metropolitan areas measured by the UCLA report.




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