State budget cuts could have major local implications
The economic forecast for Southern California may be dismal, but it’s nothing we can’t recover from.
That was the message from Jack Kyser, chief economist for the Los Angeles County Economic Development Corp., on Tuesday. Kyser told dozens of Santa Monica Chamber of Commerce members the local economy is already showing signs of bouncing back. However, he also said people should expect the pain to last a little while longer.
“The forecast is a modest recovery; there will be no barn burning but we will survive,” Kyser said, adding that a 2.3 percent growth in the Gross National Product this year indicates times won’t be as tough as they have been.
And while the GNP’s fourth quarter looks weak this year and may be unnvering to some, there is dim light at the end of the tunnel, Kyser said.
389,“You have a recovery, but not a traditional recovery,” he said.
For the past several years, consumers have been carrying the economy. But because they have less disposable income these days, business owners are feeling the pinch, Kyser said.
He said people should be concerned that personal bankruptcies are on the rise, hotel bookings in Santa Monica are down and a lot of office space is vacant.
But merchants can find solace in the fact that the standard economic forecast shows holiday sales should increase 3 to 4 percent over last year, Kyser said. Despite that many indexes say consumer confidence is down, one only needs to look at the busy shopping malls throughout Southern California this past weekend to realize it’s not all gloom and doom, he said.
“It says people are not going out, that they are staying at home with the lights off and the shades down,” Kyser said. “That’s not the case.”
If the Third Street Promenade’s strong activity over the past weekend is any indication, holiday sales should hold steady over last year, officials say. But that’s not what’s happening in other parts of the state. Kyser reported that retailers in northern California were down in double digits in the fourth quarter of last year.
“You don’t want to be a retailer in the Bay area right now,” he told the group. “Northern California is hurting and the Bay area is struggling.”
Hotel occupancy through September is down 65 percent in Los Angeles County and 69 percent in Santa Monica. But even though those figures appear to be bouncing back, hotels throughout the state have slashed room rates in order to secure bookings, Kyser reported. He noted he was able to book a hotel room at a five-star hotel in San Francisco this upcoming weekend for $150 a night.
The office space vacancy rate in Los Angeles County is 16.5 percent and 15.4 percent on the westside, Kyser said.
“That has gone up dramatically in the past year,” he said. “The office market is kind of sloppy for the next few years.”
As for the rays of sunshine in Kyser’s forecast, corporate profits are looking better, there is a slight increase in business expansions and inflation is under control. On a local level, the movie industry is bouncing back, with a 15 percent increase at the box office over last year and the industry has grown 18 percent. Other industries that are expanding are professional services, as well as furniture and home furnishings in Southern California, Kyser said.
Defense spending will continue to rise as the war on terrorism and the Office of Homeland Security continues to grow, Kyser said.
“This is something that we’ll be living with and does have implications for Southern California,” he said.
The largest implication for government spending is the state budget which faces a $23 billion deficit this year, a $21 billion deficit next year and is forecasted to be at least $16 billion through 2008, Kyser said.
On Friday, Gov. Gray Davis will present a slate of mid-year cuts and savings for lawmakers to take up during a special session that he asked to be wrapped up by the end of January.
Davis previously said the package of midstream cuts would total about $5 billion, but on Tuesday he said it will be substantially higher than that.
“This has implications for everyone in the state — the government, education and business,” he said. “We have to be very, very alert because it will be painful.”
Kyser said it’s important for business-minded people to watch government to make sure lawmakers don’t make bad policy decisions when it comes to public spending.
As for continuing to go through years of deficit spending and consumer debt, it will be an interesting time, Kyser said.
“A lot of people will be able to handle it and the Federal government can handle it but who knows what the state will do, so hang onto your wallet,” he said. “We are not in an era anymore when you can kick back and think everything is going to be OK.”
“We are not in an era anymore when you can kick back and think everything is going to be OK.” — — JACK KYSER L.A. County Economic Development Corp
Originally published in the Santa Monica Daily Press print edition on December 4, 2002. Read the original PDF.