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By Jorge Casuso
January 14 -- Across the nation, homeowners are losing
their homes in a tanking real estate market, and consumers are accruing
record debt.
In California, the state faces a $14 billion budget shortfall, while
in Hollywood the writers’ strike could drag well into the
spring.
The economists all seem to agree that 2008 could be a sluggish –
if not downright poor – year for national, state and regional
economies.
“2008 looks pretty grim. Consumers will cut back," said
Christopher Thornberg, a partner of Beacon Economics, a consulting
firm specializing in the state and regional economies,
“We as consumers have been way overspending for a number of
years,” Thornberg said. “The adjustment is good. The
transition is painful.”
“We are in a recession watch for the nation, Southern California
and the LA economy,” said Jack Kyser, chief economist of the
Los Angeles County Economic Development Corporation. “The
economy is in a rather fragile state.”
Although the writers’ strike may be only a blip in the larger
economic picture, if it lingers as it did two decades ago when television
productions shut down for five months, the walkout could hit the
Westside, including Santa Monica, hard, Kyser said.
“The ripple impact could be significant,” he said. “People
would be losing their homes, not buying cars, not going out to eat.
It could mean a lot of people really struggling.”
But the economic picture isn’t all gloom and doom, Kyser and
other economists agree.
They note that while the LA region’s economy has slowed, it
still is projected to grow by 1.8 percent in 2008, although that
represents a drop from an average growth of about 2.5 percent in
recent years.
“Personal income is growing, but at a slower rate,”
said Jerry Nickelsburg, an economist for the UCLA Anderson Forecast.
“Construction is declining, and auto sales are flat. 2008
is not going to be a growth year.”
Although the economy has been hit by a slew of foreclosures in the
“problematic” real estate sector, higher oil prices
and a “troublesome” rate of consumer debt, a recession
is not on the horizon, according to a report released last month
by the Anderson Forecast.
“Weakness in the vast real estate sector will be the central
component of a sluggish economy,” the report stated, “but
there will not be enough job loss to trigger a statewide recession.”
Ironically, a recession would be staved off because “the manufacturing
sector has never recovered the jobs it lost from the last recession
and, as a result, doesn’t have enough jobs to lose,”
UCLA economists said.
And although there will be jobs lost in the construction sector
and real estate-related financial services, it will not be “nearly
enough to trigger a recession,” said Edward Leamer, the forecast’s
director.
If the weakening housing market were going to trigger a recession,
it would already have done so, according to UCLA economists.
“Recessions have traditionally trailed a housing peak by no
more than a year,” the forecast found. “At this point,
the business cycle is trailing the housing cycle by seven quarters
without a recession.”
Still, the Los Angeles area housing market – which saw sales
prices dip by 8 percent over the past year – is expected to
worsen, with economists predicting a 10 to 12 percent drop in 2008
and another 5 to 6 percent decrease the following year.
“If the median housing price drops, that means a lot of people
who bought are going to be underwater,” said Thornberg, who
was formerly with the UCLA Anderson Forecast. “A lot of people
used the equity to live the high life. It’s not going to be
a pretty picture.”
While Santa Monica has not been hit by the sub-prime housing debacle,
sales taxes – which account for 58 percent of the City’s
general fund revenues – have leveled off, City officials cautioned.
“The sales tax is starting to go flat on us and . . . auto
industry (sales) are starting to decline too,” said City Manager
Lamont Ewell. “Those are bellwethers for us.”
The City’s biggest concern is how Governor Arnold Schwarzenegger’s
declaration of a fiscal emergency last month could impact the City’s
bottom line, Ewell said.
“The fiscal emergency gives (California) the right to come
in and borrow from local economies,” Ewell said. “Our
economy is cooling, and to have someone come in and start robbing
our coffers could have an impact.”
But not all City revenue sources seem to be threatened by a weakening
economy, Ewell said. The Transient Occupancy Tax (TOT), or bed tax
collected by hotels, actually could see a slight increase, thanks
to Santa Monica’s thriving tourism industry and the weak dollar.
“Because we have such a diversified set of revenues, one seems
to offset the others,” Ewell said. But, he added, “I’m
advising the council to be cautious.”
Tourists will be lured to the LA area by a rich offering of attractions
that include the opening of the Broad Museum of Contemporary Art
and the Chinese Gardens at the Huntington Museum, the 5th anniversary
of Disney Hall, the 50th anniversary of the Dodgers, even the new
Simpsons ride at Universal Theme Park, Kyser said.
“This will draw a lot of media attention and draw a lot of
people to Southern California,” Kyser said. “The tourism
news is very good news for Santa Monica.”
In addition, a recent agreement between the U.S. and Chinese governments
could soon bring more leisure travelers from the world’s largest
country to the West Coast, Kyser said.
Santa Monica business leaders are confident the local economy –
which has been powered by tourism, retail and the Internet and entertainment
industries – will continue to thrive.
“We feel very encouraged about the economic outlook for Santa
Monica in 2008,” said Laurel Rosen, president and CEO of the
Chamber of Commerce. “With the City’s retail and tourism
industries, we should be strong in comparison with the national
and even other local economies.”
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