California Outlook: Difficult Days Ahead

Fasten your seat belts, Californians, it's going to be a bumpy economic ride. Jack Kyser, senior vice president and chief economist for the Los Angeles County Economic Development Corp., broached the subject of just how bumpy the ride will be during the California Fashion Association's (CFA) general meeting Jan. 30 at Los Angeles' Jonathan Club.

Kyser pointed out that the Golden State, along with the rest of the nation, has been hit hard by a series of events, including a "nontraditional," on-going recession, continuing ripples from the terrorist attacks of Sept. 11, 2001, corporate scandals, which have eroded public trust, the tech and telecom crash, the stock market bubble burst, and the looming troubles in the Middle East.

"The possibility of war is hanging like a cloud over everything," he admitted. "Until we get the uncertainty of Iraq out of the way, we're not going to have much of an economic rebound."

He said other factors that may discourage California business are:

Budget Deficits. With the state government awash in red ink, the business community needs to brace for a downward slide, with problems in the state's infrastructure being shunted to the side and possibly getting worse.

Energy Crisis. People are once again becoming nervous about energy issues, with another shortage predicted in about four years.

Business Issues. Workman's compensation insurance is beginning to creep upward again, which will have a negative impact on apparel manufacturers. Also, the Family Leave Act will kick in next year, putting pressure on small- and medium-sized companies.

Longer Potential War with Iraq. Kyser warned that retailers will have a hard time attracting shoppers because "everybody is going to stay at home watching TV."

However, if the potential war with Iraq is mercifully short, Kyser predicted that the U.S. economy will face a modest rebound in the second half of 2003. "The first half of the year, you're going to be on pins and needles because you're not going to know what's going on."

Last year the economy grew roughly 2.5 percent, Kyser said. "Using our scenario of a short war, we'll only have a 1.9 percent increase in 2003, and 2004 will be a much more normal year." California, as opposed to the rest of the United States, has some bright spots, including an increase in defense spending, which translates into jobs.

And Kyser said he expected a stabilization of the California apparel industry's manufacturing employment base.

Also positive is the state's population growth, which is one of the reasons Wisconsin department store chain Kohl's is moving into California with an initial rollout of 28 stores.