SAN FRANCISCO — As the California economic recovery inches forward, retailers in the nation’s most populous state have been handed a potential boost in sales: a 1 percent decline in the statewide sales tax, equaling a $4.5 billion annual savings for consumers and businesses.
The base sales tax rate is now 7.25 percent as of July 1, after the California legislature let lapse a 1 percent increase imposed in 2009 as a stopgap revenue raiser during the recession.
The sales tax dip is calculated by California to be a $233 savings per household over the next year in this state of more than 37 million people.
It’s unclear how much this increase in disposable income — and lower consumer costs — might increase shopping, but “the sales tax reduction is certainly going to help retailers,” said Alan J. Auerbach, an economics professor with the University of California at Berkeley.
Persistent economic headwinds that are also felt nationally threaten potential California retail gains, such as hefty credit card and home equity debt, as well as mortgages worth more than home values, or sharp declines in housing prices. People’s houses “may not be underwater or at risk for foreclosure,” said Auerbach, “but they are poorer than they were five years ago and that certainly causes a decline in consumption.”
Depending on the locale, when applicable local sales taxes are added, the total rates now range from 7.25 percent for many rural jurisdictions to a high of 9.75 percent for the City of South Gate in Los Angeles County. For population centers, the 1 percent drop now means the rate for San Francisco is 8.5 percent; Los Angeles, 8.75 percent, and San Diego, 7.75 percent, according to the state’s Board of Equalization.
Even in recovery, California’s economy is still considered a global powerhouse, amounting to $1.9 trillion in 2010. If the state were a country, its economy would be ranked ninth in the world, behind Italy, Brazil, the U.K., France, Germany, Japan, China and top-ranked U.S., according to the recently released World Bank global scorecard.
A looming obstacle to economic improvement is California’s 11.8 percent unemployment rate as of June, the second highest in the nation next to Nevada’s 12.4 percent, according to seasonally adjusted data released late last month by the U.S. Bureau of Labor Statistics.
After starting the year with a 12.7 percent jobless rate, California employers are expected to continue adding jobs gradually, although the rate isn’t expected to dip below double digits until the second quarter of 2013, according to the UCLA Anderson Forecast.
Encouraging for retailers, Golden State consumer incomes are also pegged to rise, increasing 4.1 percent this year, 5.3 percent in 2012 and 5.9 percent for 2013. In contrast, incomes during 2010 rose just 2.5 percent after a 2.3 percent decline in the doldrums of 2009, according to the UCLA forecast. (Nationally, incomes this year are forecast to gain 5.1 percent, 3.7 percent in 2012 and 4.8 percent for 2013, after increasing 3.1 percent in 2010 and falling 1.7 percent in 2009.)
Another key retail barometer — taxable sales — are also strengthening, according to the California forecast. There are expected gains this year of 4.4 percent, followed by increases of 6.8 percent in 2012 and 6.6 percent for 2013. In contrast, last year state taxable sales rose 3.5 percent after plummeting 14.2 percent in 2009 and falling 5.2 percent for 2008.
It’s important to note these taxable sales forecasts were calculated before the 1 percent sales tax decline.
Based on the lower rate, it’s difficult to weigh how retail buying patterns might change when other economic factors are afoot to influence consumption, said Jed Kolko, policy fellow with the Public Policy Institute of California. He cited how two years ago when the state increased the rate 1 percent, it coincided with the recession when people were otherwise curbing their purchases.
Nevertheless, retail sales of higher-ticket items, including luxury goods, could benefit, Kolko said. “There may be people who might think this is the right time to buy the unusual higher-priced items,” he said.
On the other hand, retail sales gains “could be because of something else,” such as improvements in the stock market or lower income taxes, he said.
Whatever yardstick is used, California’s economic recovery is uneven, with some regions in the vast state improving faster than others.
For example, in northern California, the San Francisco metropolitan area in June posted an 8.7 percent jobless rate. In contrast in southern California, the greater Los Angeles/Long Beach/Glendale metro area’s unemployment rate was 12.4 percent and San Diego’s 10.4 percent. Rural Imperial County in the southeast registered a 28.5 percent unemployment rate and Merced County in the agriculture rich Central Valley posted a rate of 18.7 percent.
The San Francisco Bay Area, including Silicon Valley, is showing relative strength in contrast to elsewhere in the state because of a concentration of high-tech, bio-tech and health-care related jobs that are balancing the economic drag of the lagging construction experienced in other regions.
“We’re in a good position in the Bay Area because we’re focused on technology and innovation,” said Sean Randolph, executive director of the Bay Area Council Economic Institute. “We have one of the strongest economies in the country if you’re looking at it through that prism.”
Among Bay Area small and medium-sized companies, there’s caution about continued economic growth. According to a second-quarter BAC survey of 432 chief executive officers, 53 percent expect to hire more employees during the second half of the year.
The survey scored a confidence level of 62 on a possible index of 100. While the index is unchanged from a year ago, it registers more than 50, the threshold for gauging “positive economic times.” In contrast, in January 2009 during the recession, the index hit a record low of 31.