Questions remain unanswered about the two biggest blows to the Southern California economy the subprime mortgage meltdown and the strike by television and film writers that shutdown production. Lurking in the shadows is the dreaded “R” word recession. While the forecast by the Los Angeles Economic Development Corp. does not call for a recession, the organization’s chief economist Jack Kyser said repeated use of the word creates a downbeat mood. “It’s going to be a difficult year for a lot of people,” Kyser said. As though 2007 wasn’t difficult enough already. Foreclosures on homes bought with subprime mortgages loans to borrowers with less than perfect credit escalated during the year, leading to mortgage companies filing for bankruptcy or making significant cutbacks in staff. In the San Fernando Valley, that meant layoffs at WMC Mortgage in Burbank, the lending arm of General Electric Co., and at Countrywide Financial in Calabasas. Countrywide’s difficulties were worsened by an informal investigation into the sale of $130 million in shares by CEO Angelo Mozilo; and probes by the state attorney generals of California and Illinois. With home prices dropping and sales stagnating, retail spending reduced and the cost of a gallon of gas staying above $3 with predictions of $4 a gallon in the spring, there can be little wonder of the talk of a recession. The Dow Jones posted a fourth quarter drop but finished the year with a gain, as did the Nasdaq and the Standard & Poor’s 500 index. “A lot of people believe we started a recession in December,” Hugh Johnson, chief investment officer of Johnson Illington Advisors, was quoted last month by Reuters. “We’ll get a good idea whether that’s true or false from the jobs data.” Further clouding the local economic picture is the ongoing strike by the Writers Guild of America against the major studios. The writers may have started the walkout but are not the only ones whose livelihood is on the line the longer the strike lasts. Suppliers and vendors to production companies and below-the-line crew members also feel the effects. The sticking point between the writers and the studios how to divvy up revenues generated from TV series and films made available online and on mobile devices will need to be worked out with two other unions whose contracts expire in June, the Screen Actors Guild and the Directors Guild of America. Negotiations between the studios and the DGA are scheduled to begin Jan. 7. A recession could be triggered if the WGA strike continues into the summer and then the actors, already in solidarity with the writers, stage their own walkout. “Given the importance of entertainment to the Valley, both those folks being out would really have a large effect on the industry and flow of dollars in the economy,” said Dan Blake, director of the San Fernando Valley Economic Research Center at California State University, Northridge. The combination of the reduced spending due to the strike and the credit crunch is already starting to make itself felt in retail spending, Blake said. Discretionary spending for restaurant meals, entertaining, and sports will be cut back. “Somewhere in the retail sector there is going to be some tightening,” Blake said. That may not be the best news for the city of Glendale where the American at Brand mixed-use project is scheduled to open later this year. But while Blake expects less retail spending that may not be the case with new retail projects that shoppers are excited to see. The American will likely make Glendale more a draw, Kyser added, but the shopping districts in neighboring Burbank and adjacent Los Angeles neighborhoods may see a drop in dollars spent there. Tourism is another bright spot and the challenge for the Valley is to snag those tourist dollars, Kyser said. Should the value of the dollar stay depressed, that could further boost tourism. The new ride at Universal Studios based on “The Simpsons” television show will draw visitors, he added. An agreement between the U.S. and China to allow more casual Chinese tourists to visit is a boon for Los Angeles as the city tends to get the most Chinese visitors. “We’re optimistic this market will build,” Kyser said.
