“I think that 2012 is going to be a little more upbeat [and] we’re going to see stronger growth across most industry sectors ... That being said ... I would say the economy is still a little bit fragile,” said Kimberly Ritter-Martinez, associate economist for the Los Angeles Economic Development Corporation’s Kyser Center for Economic Research. “We still have this problem with excess debt and then we have an excess housing supply. I think that’s going to keep expansion in 2012 in check.”

In the tail end of last year, the region saw modest employment gains, healthier consumer confidence and slightly better than predicted retail sales during the holidays. The fourth quarter also brought increases in the automotive and electronic industries as well as manufacturing. Other sectors in a somewhat good position are healthcare, private education, tourism and hospitality and “white collar” industries, such as business and professional services, Ritter-Martinez said.

But, 2011 still was an all-around tough year, she said, affected by deep government cutbacks; foreign natural disasters; volatile commodity prices; swings in the stock market; and a downward trend in international trade activity.

Economists predict growth to decelerate in the next two quarters and then pick back up again by the second half of 2012, making for relatively flat growth. “It’s not robust growth, and neither is it completely lackluster ... It’s kind of somewhere in between,” said Lisa Grobar, associate director of California State University, Long Beach’s Office of Economic Research.

The main concerns impacting the local area this year, she said, should be global economic conditions and national macro-economic policies.

Whether the struggling housing market turns around will largely depend on the direction of the unemployment rate and consumer confidence, Grobar said. Mortgage rates should continue to stay at historic lows. But, strict standards for financing should keep home purchases to a minimum. The most improvement in the residential real estate market this year should be in the apartment sector, she said.

Jobs Added, But Unemployment To Persist

In December, the United States unemployment rate dropped to 8.5 percent, the lowest in nearly three years, according to national statistics. As of November, California’s jobless rate also crept downwards to 11.3 percent. In Long Beach, the unemployment rate dipped to 12.7 percent, the lowest in nearly 18 months.

But, most economists predict the jobless rate to stay relatively flat this year, or possibly edge back up again once cyclical industries, such as retail, shed seasonal jobs. Also, economists say the job gains still aren’t enough to push the jobless rate down dramatically. The UCLA Anderson Forecast predicts the national unemployment rate to tick back up above 9 percent by the end of the year. While Los Angeles County saw employment gains last year, Grobar said the county’s job market continues to trail behind the rest of the state. Orange County continues to be the fastest growing area in Southern California, above Riverside and San Bernardino respectively, she said.

Ritter-Martinez added that the labor market heavily depends on a person’s educational level. For job seekers with a bachelor’s degree, the unemployment rate is roughly 4.4 percent, which is considered almost full employment, while competition is stiffer for those with less qualification, she said.

Trouble With Trading Partners

One of the wild cards for the local area this year is a possible recoiling of activity with California’s trading partners, said Jerry Nickelsburg, senior economist for UCLA’s Anderson Forecast. He said the United States real gross domestic product, or GDP, is projected to rise to a modest 1.7 percent this year.

Although exports posted gains last year, recent reports already show weakening growth in China, along with a decline in manufacturing in Taiwan and South Korea, he said. “We need those economies to be growing more rapidly in order to increase growth rates in California,” Nickelsburg said.

A recession in Europe may also impact the state since California is Europe’s top exporter, in dollar terms, and about 15 percent of the state’s total exports go there, Ritter-Martinez said.

A financial crisis abroad may be bad news for port-related areas such as Los Angeles County, she said. “Some slowdown [in Europe] is definitely going to have an affect on us,” Ritter-Martinez said, adding that industries impacted may include agriculture, technology goods, entertainment, engineering, software development and tourism.

Domestic consumption is expected to increase by a modest 2 percent in 2012, Nickelsburg said, adding that, while positive, projected consumer spending may not be enough for imports to dramatically pick up at the ports of Long Beach and Los Angeles and for retailers to justify buying more foreign products. “U.S. consumers are not really increasing their consumption the way they normally do coming out of a deep recession,” he said.

Even though retail sales improved during the holidays, Ritter-Martinez added that consumers still have built-up debt and dwindling savings, while personal income remains relatively flat.

“We’ve made some progress in reducing consumer debt, [such as] credit cards, mortgages and things like that, but not enough to start seeing that savings rate [improve],” she said. “The stronger sales we saw over the holidays were primarily due to people dipping into their savings . . . Going forward into the year, I’m not sure how sustainable that’s going to be.”

Further, Nickelsburg said the presidential election brings its own set of uncertainties with big question marks in terms of future government policy, the size of government and the impact on business costs. But he said direct impacts of this year’s election still have yet to be seen.

On a positive note, economists agree that inflation should be a non-issue this year as price pressures in food and energy experienced last year have somewhat eased off and there continues to be too much slack in the economy for businesses to demand higher prices or employees to request higher wages.

State’s Fiscal Crisis Continues

In California, local cities continue to struggle amidst the state’s ongoing financial crisis. Gov. Jerry Brown is projecting a $9.2 billion budget deficit for fiscal year 2013 as state revenues are expected to come in below projections. The governor plans to ask voters to approve temporary tax increases this November to fund schools and public safety. But state analysts say the measures may still not fix the state’s anticipated shortfalls and more budget cuts may be needed.

Closing a $26.6 billion budget gap last year resulted in the Legislature voting to eliminate redevelopment agencies, or RDAs, which were created to remove “blight” in poor areas by using a portion of state property taxes, which otherwise would have gone to schools and public safety, to subsidize new development and other services. The action is expected to go into effect February 1 after being upheld by the California Supreme Court in December.

Meanwhile, California State Sen. Alex Padilla is expected to introduce a bill that would extend the state’s deadline for shutting down redevelopment in an effort to rescue agencies in some new form that would carry on business, but with significantly less funding, according to city officials. However, it’s still unclear how the Legislature will vote and if the governor would go along with it.

Additionally, some local cities, including Cerritos, Carson and Signal Hill, recently filed an injunction with the California Superior Court against the state, also requesting a deadline extension. The stay comes on the heels of a lawsuit, challenging the constitutionality of specific mandates in the state legislation that weren’t addressed in the Supreme Court ruling. A hearing to take up the matter is set for January 27.

Regardless, the state’s decision is still likely to result in: more local government cutbacks; increased budget deficits in some cities; a downturn in construction work; and financially hindering hundreds of commercial and residential real estate projects, among many other potential impacts, according to several city officials.

Even though about $1 billion will now go to fund schools and public safety, the state has already enacted painful cuts to public education that may cause more job loss in local cities throughout the year as well, economists said.

Cities To Deal With The Loss Of Redevelopment

As the full impact is still being sorted out, city officials say the loss of redevelopment is expected to be a major blow to area cities that have been maintaining lean budgets and streamlined city departments, while enacting budget cuts in anticipation of revenue shortfalls.

The City of Long Beach passed a balanced fiscal year 2012 budget last year by bridging a projected $20.3 million budget gap and making cuts to public safety and other city departments. Some reductions were restored after the city saw windfall oil revenues of $18.4 million last year. But, a majority of the funding went to pay for “one-time” expenditures, including infrastructure projects and other city needs. Long Beach Mayor Bob Foster told the Business Journal that the shining light for Long Beach in 2012 is major private and public investments in infrastructure, development and capital improvements, expected to generate new jobs for the region.

A few examples, he said, are increased investments in the medical community at Miller Children’s and Memorial hospitals along the Long Beach Boulevard and Atlantic Avenue corridor and a “backlog” of construction projects at the Port of Long Beach, including the $950 million Gerald Desmond Bridge Replacement Project and the nine-year, $1 billion Middle Harbor project.

Two large projects moving forward this year include the $490 million George Deukmejian Long Beach Courthouse downtown and the new $45 million passenger concourse terminal at the Long Beach Airport. Both are to be completed in 2013. “I think the city is pretty well positioned,” Foster said. “Counting all those things, plus others ... I think we’re going to be in fairly good shape.”

The mayor said the loss of redevelopment should be a big blow to economic development efforts throughout California and in Long Beach, where he said the RDA has utilized nearly $1 billion in investment to revitalize the city over the past several decades. “It’s transformed the city,” Foster said. “Thank God we’ve done a lot.”

Expecting RDA to evaporate, he vowed to continue efforts of economic development in its place. “Going forward, [RDA] is probably not going to be a tool we can use,” he said. “So, we have to change the way we do business to be much more focused, and we have to look to ways in which we can now replace the money we had and figure out how we get the kinds of investment we need to improve the city.”

He added, “I don’t know yet what that would be. But I know it’s probably going to take some reorganization. It’s going to take some refocusing on how we administer our limited economic development funds ... We’ve got to be creative and find other avenues ... I certainly don’t want to lose the momentum we have in improving the city.”

Foster said fiscal year 2013 should continue to have a “fairly significant budget gap.” However, he added that the city’s finances should be balanced by fiscal year 2015.

After police and firefighter associations adopted pension changes last year to result in $110 million in savings over the next decade, Foster said the city’s next step is negotiating with the largest union, the International Association of Machinists, to help “reduce the burden,” and “make it easier to make our ends meet.”

Carson Mayor Jim Dear said the loss of the city’s redevelopment agency would mean cutbacks in city services. “Those services will be impacted negatively because of Sacramento’s inability to balance their budget,” he said.

Otherwise, Dear said the city is in “relatively, very good shape” financially, after a 17 percent increase in sales tax revenue last year and with over $20 million set aside in reserves. Projects moving forward in Carson this year include 405 Freeway interchange projects, improvements to the Carson Street corridor and upgrades to the South Bay Pavilion mall.

Still, Carson is expected to see an $11.3 million reduction in administrative funds due to RDA tax increment dollars being tied to the city’s general fund. The shortfall in funding may mean more potential layoffs as some employees are “bumped” to other departments in order of seniority, city officials said.

Ken Farfsing, the city manager for Signal Hill, said he is not planning for the city to make any layoffs due to the loss of redevelopment, since the city has kept a lid on hiring any new employees over the past decade.

In terms of general economic development this year, he said, “What we see is 2012 will be similar to 2011. We don’t see a big rebound coming in the economy.” Developments this year in Signal Hill include the completion of the Signal Hill Collection residential townhome community by City Ventures, a new EDCO recycling transfer facility and improvements to the Boulevard Buick GMC Cadillac dealership. While the city should be in a balanced position and won’t have to dip into reserves this fiscal year, Farfsing added that it’s still uncertain where the city stands financially due to the loss of the redevelopment agency.

“We’ve got a lot of uncertainty right now,” he said. “At this point, we basically have to sort through and take it a day at a time. Until all these moving parts are nailed down, it’s difficult to tell anybody with any certainty where we are from a financial position.”