KPCC business analyst Mark Lacter and his predictions for the economy in 2011.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. It's the last week of the year, Mark – time to take out your crystal ball on what’s in store for 2011.
Mark Lacter: I’ll defer on the crystal ball reading, Steve. But there are things to be on the lookout for, starting with the unemployment rate and also the number of jobs that are being created. That's a quick read on whether the recovery will be as sluggish as most of the forecasts would indicate or whether we might see growth moving a little faster than expected (perhaps the result of improving consumer confidence or the tax cuts).
Julian: December's report for the U.S. comes out late next week - what should LA County, for example, look for?
Lacter: A good start would be for the jobless rate to start falling, instead of rising, as it has the last couple of months (it's now at 12.9 percent). Another area to watch is housing, although here the question isn't so much whether we're going to see a big pickup in demand - that's quite unlikely - but rather how much worse the market might become. This past year was very tough for real estate, mostly because foreclosure problems have yet to be sorted out in places like the Inland Empire, and also because sales have been sluggish in the more established communities (too many potential sellers have held off putting their homes on the market and too many potential buyers have held off making offers because they think prices will keep dropping). Housing recoveries often take years following a bad recession, which is why the forecasts for 2011 show only a small increase in sales activity - and that's the best case scenario.
Julian: And the worst case?
Lacter: ... is that the banks aren't able to resolve their problems over foreclosure filings or credit becomes even tighter or consumer confidence takes an unexpected dip. Of course, one of the best ways of gauging the economy is at the Ports of Los Angeles and Long Beach. If we continue to see more traffic coming in, it means that retailers are feeling more confident that consumers will keep buying, as they did during the holiday season. More traffic going out means there's overseas demand for U.S.-made goods - especially for stuff like computers, aircraft parts, and medical equipment.
Julian: What about the less obvious areas?
Lacter: Some of the most telling indicators are really the ones we see every day. Stores that are opening - or closing - can be a sign of how the economy is doing. Remember that a year ago around this time there were a number of chains closing locations or actually being forced into liquidation. This year, the situation has stabilized, but we'll have to see if retailers are willing to expand their operations - that could tell us a lot about their expectations for consumer spending. Also, check out construction activity in the region. A couple of years ago building pretty much came to a standstill because banks had tightened up on construction loans. Things slowly started to improve this year, but construction jobs still remain hard to come by. Here's my little indicator - how many dump trucks and cement trucks are on the roads - the more of them you see, the more likely it means that things are opening up.
Julian: What about watching the Joneses?
Lacter: That can tell you a lot – are your friends buying a new car, taking a more exotic vacation, eating out more often? This year, there was a little more of that taking place (car sales, as an example, are looking especially good for December) - and that pattern will probably be repeated into the new year. So instead of have- and have-not, it’ll be have-more and have-less. The folks who have jobs and have seen their investments in the stock market take off are likely to be a lot more comfortable about spending money, assuming no unexpected financial disaster. For everybody else, it's going to be another year of wait-and-see - and a very frustrating year I'm sure.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes business blogs at LA Observed.com and at kpcc.org.