By and  on July 16, 2009

California lawmakers appeared close to a deal late Wednesday to resolve the state’s budget crisis, which has been yet another challenge for the state’s battered retailers and manufacturers.

Economists said the budget circus has created widespread uncertainty, which is a drag on the state economy, as the engines of economic growth — large employers and consumers — stall until they can be reasonably confident the government has its house in order.

“Unemployment, and just apprehension about jobs, is huge; devaluation of real estate and inability to get a credit card are also very big,” said Fred Levine, whose Southern California contemporary chain, M. Fredric, has seen big drop in sales over the last year. “It’s also a state of mind — the fact is that we don’t know if we’ve hit bottom. There’s a big psychological impact.”

Like other apparel designers struggling through the recession, Karyn Craven, founder of Burning Torch, a decade-old Los Angeles-based contemporary apparel brand, has narrowed her focus to survive. She downsized her staff and trimmed the company’s offerings by about 30 percent, focusing on unique pieces using vintage or recycled materials.

“If a consumer could get a piece from somewhere else, we decided we didn’t need to be doing it anymore,” she said. “Even though buyers are cautious we are also seeing new customers who want to see something new and those returning from years ago.”

The state has been paying creditors with IOUs for only the second time since the Great Depression because Gov. Arnold Schwarzenegger and the legislature have been unable to agree on how to close a $26.3 billion budget deficit.

Experts said any budget compromise will be painful, as cuts to state programs trickle down to the consumer level and further undermine consumer confidence.

“We know whatever the news is, it won’t be good,” said Dr. Esmael Adibi, director of the A. Gary Anderson Center for Economic Research at Chapman University in Orange County, Calif. “We are all waiting to see when they get there and how, and then we have to look at the details. Nothing fundamentally is going to change otherwise.”

The collapse of the housing market has been a major factor in the state’s financial mess, and California’s home foreclosures in May were up almost 23 percent from the same month a year ago. The state’s 11.5 percent unemployment rate is the highest in more than 30 years, and analysts and academics say the jobless rate has an enormous impact on consumer confidence and spending — something that doesn’t bode well for a speedy recovery in the Golden State.

California already had the worst debt rating in the country before three more Wall Street ratings firms, including Fitch and Moody’s, further slashed the state’s rating to just two notches above junk in recent days.

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