Business Update with Mark Lacter

New vehicle sales help California's economy

KPCC's business analyst Mark Lacter explains how the California economy compares to the rest of the country, and the world.

Steve Julian: Mark, what’s behind the big jump in L.A.-area car sales?

Mark Lacter: We keep hearing about how consumer confidence remains low, Steve, but last month nearly 40,000 new cars and light trucks were registered in Southern California. That's pretty big - a 50 percent increase from a year ago and more than double the number in 2009 (that's really when the recession took hold).

Julian: Who led the way?

Lacter: Chrysler sales were especially strong in June (and that makes sense considering that Chrysler earnings shot up in the April-June quarter). Other automakers doing well in the L.A. area were Subaru, Volkswagen, Nissan, Ford, and Chevy. Actually, the results aren't all that surprising if you look at June auto sales nationally (we'll see the July results later this week). And if you look at retail sales for L.A. County, it also makes sense – they peaked in 2007, took a sharp drop over the next two years, and have slowly been coming back. They might get back to those 2007 levels by next year, according to the Economic Development Corporation.

Julian: Is this about consumer confidence?

Lacter: Well, let's remember that not everyone is buying a car because they're upbeat about the economy. If your vehicle is of a certain age, you might not have much choice. Let's also remember that while retail sales are up, they're not at the level you'd expect three years after a recession. And don’t forget that the statewide jobless rate is 10.7 percent, which is not great. But clearly people are willing to spend some money under some circumstances. And what seems to be happening is a kind of disconnect between general concerns about the economy - the concerns that are reflected in those confidence numbers - and individual decision-making.

Julian: The stock market's been doing pretty well, too, this year, trading above 13,000 the other day for the first time since May.

Lacter: ...and if investors look at their brokerage statements, they're likely to be pleasantly surprised - perhaps enough to consider buying a car or even a house. This is sometimes called the "wealth effect," which is the idea that investors feel more secure about their wealth, causing them to spend more. Of course, if the market were to go down, there is something called the negative wealth effect.

Julian: So how does California's overall economy shape up?

Lacter: Well, it's still strong, though not quite as strong as it used to be. The Economic Development Corporation has compiled a list that shows where California's annual production output would rank if it were an individual nation. It's kind of an apples and oranges exercise because you can't really compare a state with a country, but it's always been a great PR tool because California ranks very high. Matter of fact, the state was the fifth largest economy in the world for a couple of years back in the 80s. Then it moved into the seventh spot in 2002, and then eighth position, and in the most recent ranking, California is the ninth largest economy in the world, at $1.9 trillion. That's ahead of Russia and behind Italy.

Julian: And Southern California?

Lacter: The five-county region would be the 16th biggest economy, ahead of Indonesia and behind South Korea. L.A. County alone would be in 21st position, ahead of Sweden and behind Saudi Arabia. These are very impressive numbers - and what's even more impressive is that California's current growth rate is running higher than many of the nations on that list, including the U.S. as a whole. Now I know a lot of this might not make sense, considering how we're constantly reminded of how badly the state is doing. And I don't mean to sound like the resident Pollyanna.

Julian: I've never pegged you for that...

Lacter: Thanks – I think. The reality, Steve, is that the state economy always moves: businesses open and close, contracts are won and lost, people get hired and fired. Obviously, many of the recent movements have been uneven, but it would be a mistake to underestimate the resources of California, even in not-so-good times.

Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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