Retail: Energy and Housing Costs, Unstable Stock Market Affecting Buyers’ Moods
Cue the Richard Strauss music. “2001” is upon us. But this won’t be a year of black monoliths and missions to Jupiter. Instead, this is shaping up to be a time of stock market woes and high energy prices.
However, people have varying opinions on how these will affect retail and wholesale business in San Diego. Business leaders foresee a slowdown, but not a recession, while many business owners predict they’ll be doing about the same this year as last year.
Kelly Cunningham, research director of the San Diego Regional Chamber of Commerce, predicts there will be 3.5 percent growth in the Gross Regional Product this year. That’s down from 6.4 percent in 2000 and an average of about 6 percent for the last decade, he said.
Slowdowns in other areas of the country are largely responsible, along with high utility rates, Cunningham said.
“The consensus now is a slowdown. We keep hearing the talk about a ‘soft landing.’ But now I’m starting to hear some talk of a recession. If that happens for the rest of the nation, San Diego will certainly be impacted by that,” he said.
Still, San Diego’s momentum will help keep the city going, Cunningham said. On the other hand, the city faces its own challenges, such as the high cost of living, the housing crunch and high energy prices, he said.
Alan Gin, economic professor at the University of San Diego, agreed. He cited a number of factors behind the lowered consumer confidence , high utility prices, the housing crunch, and the volatile stock market.
“Nasdaq has been down 40 percent from its high, and that’s affected some of the companies we have here in San Diego, like Qualcomm. So people who, last year, got rich on Qualcomm soaring up, have seen the value of their portfolios decline, and that could affect their plans,” he said.
Consumer confidence has been a huge drag on the leading economic indicators, he said. And since about two-thirds of San Diego’s economy is dependent on what consumers buy, Gin expressed concerns that the effects on small business and retail could be big.
“Things are going to be slowing in the retailing area,” he said. “People are a little more worried about future prospects, and so they’re going to cut back on their spending.”
According to local business owners, the outlook is a bit brighter than the experts indicate. The 11th Annual San Diego Business Journal/Deloitte & Touche Economic Outlook Survey questioned 207 business owners, including 16 people in the field of retail and wholesale.
The survey showed that 63 percent of the respondents felt the national economy would be about the same this year and last year , both for the retail portion of the survey and for all respondents.
The remaining respondents , both for retail and the survey as a whole , were evenly divided in saying business would be “better” or “worse.” No respondents said business would be “much better” or “much worse,” according to the survey.
Closer to home, 87 percent of the respondents reported California’s economy would be the same or better in 2001 than in 2000 , both for retail/wholesale respondents and overall. For San Diego’s economy, the figures are 94 percent and 86 percent, respectively.
Also, 13 out of 16 of the retail and wholesale respondents felt their business, on a national scale, would be about the same next year, with one expecting better results and two expecting worse conditions. The overall figure for 2001 was 54 percent reporting business would be about the same, with an additional 31 percent reporting that business would be better or much better.
For business conducted in San Diego, nine out of 16 companies expected business to stay about the same, with three expecting improvement and three expecting decline. Overall the figures were 51 percent reporting business would be about the same, with an additional 35 percent reporting business would be better or much better.
Additionally, 13 out of 16 retail/wholesale respondents said the outlook for San Diego over the next five years is good, while three said the outlook is fair. Overall, 9 percent of respondents said the outlook was excellent, 67 percent saying the outlook was good, 22 percent reporting the outlook was fair.
USD’s Gin noted his picture of the economy isn’t entirely bleak. There could be some mitigating factors to the decline in the stock market, including lower interest rates, he said.
For example, Federal Reserve Chairman Alan Greenspan will likely lower interest rates slightly in 2001. Gin predicts that rates at the end of the year will be one-half of 1 percent lower than they were at the start of the year.
However, despite promises from President-elect George W. Bush that he would work to reduce taxes, Gin doesn’t see that as likely.
“Congress is so narrowly divided that you will not be able to have any sort of major change in policy like that, even if the thought is that the national economy is slowing down,” he said.
Gin noted that there are also local issues which may effect small businesses in various areas of the community. Areas heavily dependent on tourism, such as Old Town or the Gaslamp District, may also suffer losses.
If the economy cools off as predicted, fewer people will travel, with less money spent on retail locally, he said.
Beach communities may also suffer from lost tourism. Also, if the recent trends in sewage spills continue, that will keep more people away, and stores here could suffer additional losses in business, Gin said.
But border communities might see increased business. Policies under Bush’s administration could help to improve the Mexican economy, which means more people will cross the border into San Ysidro and Chula Vista to shop, he said.
One thing Gin said will have little effect on small business and retail is the state’s minimum wage, set to increase Jan. 1 to $6.25 an hour.
“It’s not going to have a very big impact right now. The labor market is so tight right now that most wages are above the minimum wage. Overall, I don’t think the impact is going to be so large,” he said.
His statement is borne out by a California Chamber of Commerce survey of 108 companies in the state. About two-thirds of the respondents said the increase would have no effect on their business.
An additional 23 percent said it would have a negative effect and 13 percent said it would have a positive effect, according to information posted on the chamber Web site.