Local Economy Looking Up

By Jorge Casuso

January 9 -- As Santa Monica businesses prepare for the New Year, a renewed sense of optimism seems to be in the air.

Chamber President and CEO Kathy Dodson heard the positive note in the voice of the merchants she chatted with. It was there in the responses to the chamber’s questionnaire — which identified the economy as a plus, instead of a drawback — for the first time since 9/11. And it was in the business plans calling for more staff and marketing in the incoming year.

“We’re certainly hearing from the businesses that things are looking up,” said Dodson, who has headed the chamber since 2001. “Everyone is feeling that their business is doing better.

“They’re starting to spend more on marketing, hiring more, and those are good signs,” Dodson said. “This is the best I’ve seen.”

City officials agree the economy will continue to rebound in 2005. While numbers for the two final quarters are not in, sales and bed taxes in 2004 “could equal pre-9/11 levels,” said City Finance Director Steve Stark.

In preparing the City’s five-year forecast, finance officials are “following the theme of cautious optimism,” Stark said. “We believe we will continue to have a slow, steady rebound. When we look at our revenues in 2004, they appear to be stronger than we anticipated.”

The optimism seems to fly in the face of more dire predictions by economists who see storm clouds gathering at the national, state and regional levels. Rising interest rates and a downturn in the housing market could result in a sudden halt in consumer spending as early as the middle of the year, some economists predict.

“I don’t think you’re going to see major growth in 2005,” said Chris Thornberg, an economist with the Anderson Forecast at UCLA. “The first half will be okay, but problems will catch up with us. Santa Monica could be in for a hit later in the year.”

But it is unclear when the slowdown will occur, Thornberg said. “It’s like riding a roller coaster in the fog,” he said. “There’s a hill up ahead, and we don’t know how steep the downhill run will be. We don’t know how far down we’ll go or for how long.”

But if the nation and much of the region could be bracing for an economic drop, Santa Monica could be cushioned by a boost in tourism driven by a falling dollar and a strong local economy, some experts contend.

Already, the weak dollar drew overseas tourists to the Los Angeles area in record numbers in 2004. LA Inc., Los Angeles’ Convention and Visitors Bureau, projected that 24.3 million tourists will have visited the county last year, up from a record 24.2 million in 2000.

And the trend is likely to continue, economists predict. The 50th anniversary of Disneyland and a King Tut exhibit that will run at the Los Angeles County Museum of Art (LACMA) from July 15 through November 15 should drive visitors to Los Angeles County, with many making a stop in Santa Monica, economists said.

“There’s always interest in things Tut,” said Jack Kyser, senior vice president and chief economist at the Los Angeles County Economic Development Corporation.

“A lot of people will come and probably want to hit Santa Monica,” he said. “Tourism will be very good next year.”

The falling dollar already has proved a boon to Santa Monica, which is seeing an increase in foreign visitors from Europe, New Zealand, Australia and Canada, according to local tourism officials.

And the impact of the exchange rate already is being felt in dramatic ways, with foreign tourists shopping more and driving an increase in both hotel occupancy and room rates, experts said.

“With the weak dollar, people are on shopping sprees,” said Robert O. York, a consultant for the Bayside District. “Now you are having Europeans coming in who are doing shopping trips. The cost of the flight is offset by the savings.”

Tourism officials agree. “I think a lot of people are coming here to shop,” said Misti Kerns, who heads the Santa Monica Convention and Visitors Bureau.

“I think that barring any international disasters happening we are going to see slight growth,” she said. “While others have not grown, we continue to see growth in occupancy and (room) rates.”

But Kerns cautions against viewing the hike in tourism as signaling a full economic recovery.

“I’m not as eager as others to say we’re in a recovery. We’re not,” Kerns said. “I think we’re in a very fragile situation. We have a strong destination, a strong product, but we don’t control the economies around the world.”

Foreign spending couldn’t have come at a better time, local economists said. U.S. consumers have been driving local economies with a record spending spree that could come to a halt as interest rates rise.

“We have seen a lot of growth in the last few years fueled by low interest rates and a housing bubble,” Thornberg said. “We’re seeing a turnaround in the housing market. That’s not going to bode well for the local economy or Santa Monica.

“When reality sets in, you’ll see a slowdown in people fixing their homes,” he said. “People are spending 99 percent of their disposable incomes, and this just can’t last.”

York predicts 2005 will be “overall a pretty good year.” But he, too, worries consumer spending could be waning.

“There may be reason to be concerned consumers may be getting a little shop worn,” said York, a partner in the Fransen Company. “They’ve been running a marathon, and they’re really doing more than their share to keep the economy running during the past few years.”

But Downtown Santa Monica, York said, “seems to be pretty well positioned,” with a record number of new stores opening in 2004 and with the slated opening in 2005 of the new Equinox Fitness at the corner of Second Street and Santa Monica Blvd.

The New York-based company — which boasts numerous nationwide facilities — is expected to draw an upscale clientele “that will both keep people working in the Downtown longer and bring people into Downtown for that specific use,” York said.

York, as well as City finance officials, expect Downtown to continue the strong economic showing of 2004, when sales spiked in the Bayside District by more than 20 percent in the first two quarters of 2004, compared to the previous year, according to the latest statistics.

“We’re optimistic the Downtown will continue to be a draw, not only for the local residents, but also as a destination point for tourists,” Stark said.

Still there are looming questions that could impact Downtown’s economic performance in 2005, experts said. The key question centers on the immediate future of Santa Monica Place, whose owners have floated an ambitious redevelopment plan to replace the struggling indoor mall that adds housing, offices and a park.

“The direction and timetable for something happening to Santa Monica Place could be positive,” said York, “but it could be very negative if (the mall) continues to slide and empty out for the next year or two.

“There’s going to be a point where it’s going to be difficult and costly to get Santa Monica Place to be competitive again,” he said.

Then there are questions about Downtown’s parking and outdated movie theaters, issues the City Council is beginning to address but which could take years to solve, York said.

Still, barring a major disaster, Santa Monica seems poised for a prosperous year, he said.

“Overall, our numbers will look good, unless there’s a major shock to the economy,” York said.