KPCC's business analyst Mark Lacter talks about what economic stories to look forward to in 2012.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, as we get set to embark on 2012, what do we look for, starting with the economy?
Mark Lacter: Don’t expect a gangbuster year Steve. The jobless rate in California was 11.3 percent (as of November) and in L.A. County it was 11.9 percent. That’s better than last year at this time, but keep in mind that before the recession the unemployment rate was closer to 5 percent). General consensus is for a continuation of this very slow improving trend – maybe the rate will fall below 11 percent by the end of the year in California, although that assumes the recovery won’t get waylaid by the problems in Europe, or that we won’t be faced with some other crisis we’re not even thinking about. The thing to remember about the local economy is that it’s mostly a function of the national economy, and if that’s not working well, you can’t expect Southern California to be working well either.
Julian: Can you forecast the winners and losers?
Lacter: Technology should continue to do well. U.S. manufacturers that sell products overseas, especially in Asia, should do well. The entertainment industry is in decent shape, especially television, and tourism should have a solid 2012, again providing that Europe doesn’t implode and cause a global recession. Housing is going nowhere fast – there’s likely to be some improvement in sales at the lower end (largely because of all the foreclosures), but anything over, say, $500,000 remains a tough sell.
Julian: More budget deficits I assume?
Lacter: There’s very little relief in sight on this one. The state will be forced to make about $1 billion in cuts for the current fiscal year; another $13 billion or so next year. The city of L.A. is in the red this year by about $75 million, and next year by a few hundred million dollars. This is familiar story by now: Not enough money coming in, and too much money going out. Frankly, these budget deficits are so large and so chronic that if L.A. were a private company, it would have probably filed for bankruptcy protection. But that’s almost impossible to do on the fiscal level, so the only alternative is to keep cutting back.
Julian: What about attracting more business to L.A.?
Lacter: Well, city officials have been trying to do that in various ways – there’s a proposal to give new businesses coming into L.A. a three-year tax holiday, and there have been incentive packages given to several companies, such as the electric carmakers BYD and Coda. The city has also agreed to subsidize construction on a portion of a huge downtown project being developed by Korean Air (the complex will be built where the Wilshire Grand Hotel currently stands). Now, incentive deals can be a legitimate way of attracting business that a city would not have received any other way, but the question is whether the potential tax revenue being lost can be more than made up by the extra business being generated. There are a lot of different opinions on that one.
Julian: That’s one of the issues behind the proposed downtown football stadium.
Lacter: That’s right. The folks behind the stadium, Anschutz Entertainment Group, insist that their plan would result in thousands of new jobs and an overall economic boost for the city. There’s real doubt as to whether that’s true – football stadiums, as a rule, have only a minimal effect on economic growth. Also unclear is whether the NFL likes the downtown location; another potential stadium site in the City of Industry is being pushed by the L.A. billionaire Ed Roski. AEG is close to releasing an environmental impact report on the downtown stadium; they'd still like to begin construction in 2012.
Julian: Finally, a new owner for the Dodgers
Lacter: That will be the other big sports story for 2012. The current owner Frank McCourt has agreed to sell the team through the auspices of the U.S. Bankruptcy Court, and the most prominent bidder is expected to be an investment group led by Magic Johnson. The plan is to have a new owner in place by the end of April, but who knows how the bidding might go and already there are complications connected to the team’s TV contract. It’s a little like trying to forecast everything else about 2012: Some encouraging signs but also a lot of uncertainty.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.