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California Consumers Out In Force


And on top of the cyclical fears, pundits continue to lambast California’s “toxic” business environment saying it stifles growth – and the economic recovery.

Beacon Economics never bought into fears of a double dip. For months we have been writing that there is neither the data nor the driver to support such a prediction. And while hype about a double dip is finally beginning to die down, blame for California’s slow recovery abounds.

In the current economic environment – California has the second highest unemployment rate in the nation and a high rate of foreclosures – there are powerful daily reminders of how far we have to go to get back to pre-recession levels. But do the trends support the idea of stagnation in the Golden State? Maybe for the business climate activists, but California’s consumer spending data is painting a totally different picture.

Taxable sales data released by the California Board of Equalization are an excellent data way to gauge consumer spending in the Golden State. Since hitting bottom in the first quarter of 2009, seasonally adjusted taxable sales have increased consecutively every quarter through the second quarter of 2011. Quite impressive given all the doom and gloom being reported in the media. According to taxable receipts data from the HDL Companies, the largest year over year percentage increases in the first and second quarters of 2011, on a real or nominal basis, were in Fuel and Service Stations, Autos and Transportation, and Restaurants and Hotels, three areas where you wouldn’t expect to see a cash strapped economy spending extra money.

While additional business spending is contributing to higher taxable sales in the state, consumers are making up the lion’s share of increased activity. Business-to-business transactions do incur sales tax and are included in total California taxable sales, but tax receipts attributed to Business and Industry taxable sales are just 15% of the state total, whereas tax receipts from Fuel and Service Stations, Autos and Transportation, and Restaurants and Hotels together make up 38%, and they are increasing more on a percentage basis.

These spending patterns point towards increased recreation and tourism activity in the state, something that is confirmed by statewide tourism data from Visit California (the official consumer website of the State of California). Average daily room rates in the state have steadily trended upward since bottoming out in February 2010, climbing 12% through October 2011 and are now just 5% below the historical peak reached in April of 2008. Hotel occupancy rates and Revenue per Available Room (RevPAR) have both followed a similar pattern. Occupancy rates have increased 13% from their bottom in March 2009 through October 2011, and RevPAR has increased 22% since its June 2009 bottom.

Hotel data is not the only source that confirms these trends. Employment in the Leisure and Hospitality Industry has steadily trended upward, increasing 3.5% from their low point in March of 2010 through October 2011 and outpacing the overall employment recovery in the state. California’s total nonfarm employment has only increased 2.2% since bottoming in September 2009. That’s pretty good industry performance for what many are calling a jobless recovery.

A generally weaker dollar could also be contributing to increased recreation and tourism activity in California by driving more foreign tourists to the state. As the dollar has declined over the last few years our goods and services have become more attractive abroad. International arrivals at California ports of entry have been trending upward since they bottomed out in 2009, coinciding heavily with the weakening dollar. However, given California’s size, foreign tourism alone does not completely explain the increases we’re seeing. Indeed, according to Visit California, the average domestic share of airport traffic in major airports such as LAX and SFO has remained relatively constant since the beginning of 2009. Californians are getting out and about as the state’s economy recovers.

So why did the Conference Board Consumer Confidence Index, a monthly survey that measures the health of the economy through perception of consumers, steadily trend downward throughout most of 2011? In November the consumer confidence index finally rose, hitting its highest level since July. Was it the doom and gloom media hype that affected consumers’ perceptions for so long? If so, our advice is: don’t believe the hype, especially when it doesn’t fit the data. That’s not to say everything is fine and people don’t continue to suffer from the aftereffects of the ‘Great Recession’. On the contrary, the recession took a heavy toll on the state, nation, and the world, but it’s important to keep things in perspective. The worst definitely appears to be behind us and the state’s economy is moving forward – as that all important data has been telling us.

CATEGORY: Consumers

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