Business Update with Mark Lacter

Lacter: Shoppers are happy in California, despite fiscal cliff

KPCC's business analyst Mark Lacter says shoppers in California are pretty content this holiday season... so far.

Steve Julian: I heard someone on the radio say yesterday, if you celebrate Christmas, the best advice I can give you is breathe – just breathe.  Mark, how's the retail end shaping up?

Mark Lacter: Steve, was it just my imagination, or were the stores really crowded over the weekend?

Julian: I wouldn’t know – I do all my shopping in January.

Lacter: Well, you’re no fun.  For everyone else, it’s seems pretty brutal out there, at least for now.  Now there’s no way to know what this actually means in terms of the total  holiday season - you know, researchers over the years have tried to compare Black Friday traffic with the full holiday sales period, and there's never much of a correlation.  We won't have the final numbers until January, but for what it's worth, consumers are in pretty good spirits this year - and that's in spite of worries about the fiscal cliff.

Julian: Is that a California thing, you think?

Lacter: Well, matter of fact, California happens to be outpacing the nation when it comes to retail sales.  The numbers have been up for 12 straight quarters, and by the end of this year spending is expected to be back at the same level as right before the recession.  All told, taxable sales in California are up 25 percent since the second quarter of 2009, when the state economy had pretty much hit rock bottom.

Julian: In what sector?

Lacter: A good portion of the increase comes from auto sales, but the numbers are up in most all categories: department stores, restaurants, hotels.  And, we know that when consumers are spending it makes businesses more willing to hire, and it opens up other areas of the economy.

Julian: Why do you think we're spending more?

Lacter: Well, it's possible that the housing market might be playing a role.  Home prices have been edging higher all year, and that increases the value of properties – and that makes it easier to refinance (also remember that interest rates are near record lows).  When homes are being sold in your neighborhood at much higher prices than you wouldn't have expected 12 months ago, it makes you feel better about your own financial situation - and about spending money.  That's known as the wealth effect.  It also happens if the stocks you own have gone up recently.

Julian: But, we also have to factor in people who aren't working…

Lacter: That’s right – and you're looking at 400,000 Californians who will be cut off from receiving unemployment benefits as of January 1 - that's if Congress and the White House can't come to terms on a budget package.  It turns out that federal funding for unemployment benefits is included in the fiscal cliff impasse.  This can get confusing, but basically federal funding kicks in after regular state benefits run out after six months.  For a while, the federal extensions provided up to 73 additional weeks, but that's been cut back to 47 weeks in California.  State officials have been sending out notifications about the possible cutoff, but it really leaves these people in a bind.

Julian: Extending benefits is a sore subject among some conservatives in Congress…

Lacter: They believe that jobless benefits discourage those out of work from looking for a job.  But many economists take issue with that argument because the government payout is not very large (we're talking about an average of $300 a week), and also because the money almost always goes back into the overall economy in the form of clothing, rent, and food - really just the basics.  Eliminating those payments won't totally derail the recovery, but along with the other fiscal cliff impacts it certainly will to slow things down.  And, what it illustrates is how serious the state's unemployment situation continues to be - and it's especially bad for certain kinds of workers (those with little education, those who are in their 50s and 60s, those who aren't adequately trained).  For these folks, the recession never really went away.

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


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