Employment Outlook Gloomy

The results of a recent economic survey confirm what anecdotal evidence has suggested about the region’s economic recovery: the Valley’s small business owners are pessimistic about the economy’s prospects, and though some are beginning to see a glimmer of hope, they are too skittish to make any long term plans or hire workers. “I’m not hiring and I’m not optimistic,” said Pam Berg, owner of MMP Printing and Digital Graphics of Panorama City, whose business dropped 50 percent from a peak of $3 million three years ago. “It’s been a real struggle.” Berg’s outlook is emblematic of the wider sentiment captured in a poll released on Oct. 27 by the Los Angeles County Business Federation, which found that almost 80 percent of small business owners in Los Angeles County expected to either freeze hiring or lay off workers in the coming six months. The results of the survey — coming three years into the Great Recession — alarmed business leaders. “The graph is heading in the wrong direction and that’s disturbing and alarming,” said Ron Wood, president of the Valley Economic Alliance, the economic development arm of the San Fernando Valley. “We knew things were not on the upswing, but we thought they were fundamentally stable. This study shows that the pessimism among owners and business managers is much worse than we thought.” BizFed, made up of 92 area chambers of commerce, business improvement districts, ethnic business groups and independent companies, surveyed area businesses during the month of September. Some 326 business owners and managers responded to the survey. Of those, only 21 percent said they planned to expand hiring in the coming months, down significantly from the 33 percent who said they planned to increase their workforce earlier this year. The survey also found that 70 percent of business owners and managers believed the outlook for the economy was flat or worse. BizFed Chairman Mark Wilbur called the results “alarming and sobering.” He said the numbers are a signal that “the struggle by business owners to stay afloat is getting sharply more difficult…It raises serious questions about how much longer many businesses can hold on.” Is there a ‘double dip’ ahead? The results of the Biz Fed survey also raised the question of whether, for the Valley’s small- to mid-sized businesses, the “Double Dip” recession is already a painful reality. David Fleming, founding chair of BizFed, said, “Many have told us at BizFed that, for them, a double-dip recession has already arrived.” Not everyone agrees. Asked if he predicts a “double dip,” William Roberts, director of the San Fernando Valley Economic Research Center, said: “Not gonna happen…there are no indicators out there of another drop, but we’re in a stagnant economy. We’re going to see slow growth; it just won’t be enough for anyone to feel good about.” In fact, Roberts said, that slow climb back up could take four to six years. The drop in housing values is a significant root cause, he said. The average value of a single family house in the Valley has fallen from a peak of $669,000 in 2007 to $348,000 in 2009, he told attendees of the Valley Industry and Commerce Association’s 23rd Annual Business Forecast Conference, held on Oct. 28. Values rose slightly through 2010 but are now back to about $350,000, below 1989 prices. The drop in housing values has, in turn, affected entrepreneurial activity, which has been a major driver of the local economy, Roberts said. “People could borrow money against their house to start up a business. Now that equity is gone.” John J. Blank, deputy chief economist of The Kyser Center for Economic Research at the Los Angeles Economic Development Corp., said the good news is that the housing market has turned the corner, that more banks are profitable — and positioned to resume lending — that personal income and taxable sales are back to pre-recession levels, and that some industries — tourism, high tech and international trade, for example, are doing well. House prices are weak and may still drop more, Blank said, but that’s a necessary part of the recovery. “Housing is affordable but it has to be cheaper to get things moving,” he said. The Los Angeles County unemployment rate of 12.5 percent won’t significantly drop, he said, until the overhang of foreclosures is off the market. “Once we get them off the market, we’ll see construction resume and people moving and buying furnishings…until then, we’re house trapped.” The unemployment rate in the Valley varies considerably from town to town, based largely on the degree of affluence. Agoura Hills, for example, had an unemployment rate of just 5.5 percent, according to the latest numbers from the California Economic Development Department. Glendale was at 10.7 percent; Burbank was at 10 percent, while Palmdale and Lancaster were up at 15 and 17.1 percent, respectively. LAEDC expects overall unemployment rates to drop to 11.5 percent next year. Housing has turned the corner, and that should eventually begin to drive those numbers down, Blank said. In early June, 4.5 percent of homeowners in the Federal Reserve’s 12th district were behind on their loans, Blank said. By the end of June, the numbers dropped to 3.7 percent. It’s still much higher than the 2.2 percent national average. But it’s a good sign. “It’s not great but we have turned the corner,” he said. Climate still too uncertain to spur hiring Area business owners said they, too, are seeing signs of life in what’s been an otherwise dismal year. But it’s not enough to convince them to start hiring. It would take at least six months to a year of solid gains before they would take that leap. Berg, for example said she noticed an uptick in business in October. “We noticed credit unions and banks are ordering more, as are nonprofits,” she said. “I’m just not sure if it’s because they are simply out of supplies or because they are actually promoting more.” Berg reduced staffing from 14 to nine people last year, but said she has no plans to quickly rehire those workers. “We’ll get some temporary help to fill in, people who have jobs elsewhere,” she said. “There is not enough new business to warrant bringing on anyone full-time because maybe it won’t last.” Geno De Vandry, president of Deking Screw Products Inc. lost two-thirds of his business in this recession. Revenues at his Chatsworth machine shop plummeted from $3 million in 2008 to under $1 million in 2009, he said. He’s had to reduce his workforce to 28 people from a peak of 45. These last few months, he’s noticed an increase in orders and his backlog is now the highest it’s been in five years. Sales doubled in 2010 to $2.2 million, he said. But it’s not enough to convince him to bring back most of the laid off workers, he said. “I hired two people for the night shift,” he said, “but I can’t do more. I can’t trust the economy. I’m afraid to reinvest in the business I don’t want to be stuck with a loan I can’t pay back.” REM Eyewear of Sun Valley “hit rock bottom,” in 2009, said Don Alecock, vice president of operations. It led to the company’s first-ever layoff. About a dozen people were let go, 10 percent of the workforce, he said. Since mid-2010, though, business has begun to slowly inch back up and sales grew 20 percent this past year, he said. The company hired three new employees in marketing, public relations and product design. But the company has no intention of bringing back all 12 people, he added, unless something major happens, like a new brand acquisition. “We have become more efficient,” Alecock said. “We contracted with an outside training agency and brought in an expert on lean business distribution practices. We learned how to run the business in a leaner fashion; how to do more with less. Going forward, we want to stay at 100, we don’t need to get to 111. That was part of our problem.” Business owners surveyed by BizFed blamed lack of certainty and excessive regulations for their decision to be slow to hire. A few added to that list high taxes and high electricity rates. Berg’s pet peeve is the California personal property tax. Even when sales fell by half, she said, she paid more in taxes than she had the previous year, due in part to that tax. Her electric rates, meanwhile, soared 25 to 30 percent at the same time her revenues plunged. “I could have hired more people for what I laid out in taxes and electricity costs,” she said. Added De Vandry: “What we’ve done is tax our jobs right out the door.”