Slow but steady economic improvement signals start of recovery in California

April 10, 1994|By Los Angeles Daily News

LOS ANGELES -- The California economy is improving for the first time in almost four years, but slow job growth could make the recovery feel much like the recession.

The state's long-term job prospects are strong because of expansion in telecommunications and international trade, but those industries are not producing enough jobs to offset the thousands being lost in aerospace, economists say.

"It's going to be very slow coming out of this. It's not like, 'Hey, things are a lot better now,' " said Howard Roth, Bank of America senior economist.

Rising home sales and modest job creation have raised hopes that the state's grueling 3 1/2 -year downturn might be ending. Home sales have improved over the last nine months while the state has added 29,000 jobs since December, marking the first consecutive three-month pickup in four years.

The UCLA Business Forecasting Project said in a report last week that the recession officially has ended and a recovery is under way. Not all economists agree that a recovery has begun -- especially in hardest-hit Southern California -- but most agree that an upturn is not far off.

Any improvement is welcome news for a state that has lost up to 800,000 jobs since the recession started in July 1990, and that is still beset with painful contraction in the aerospace industry.

The recession crippled the residential and commercial real estate markets, caused job losses in a range of industries and shattered the perception that the state's diversified economy was impervious to a severe downturn.

Rebuilding after the Northridge earthquake will prompt job growth over the next year as Los Angeles residents repair buildings and replace damaged possessions, economists say. In fact, economic stimulus from the rebuilding prompted the UCLA group to move up its prediction of a revival from the second half of 1994 to the first.

But experts caution against expecting too much from a recovery -- at least initially.

California's recovery will closely resemble the early stages of the national rebound, in which job growth was almost imperceptible, economists say.

The biggest obstacle is that no industries are yet creating a large number of new jobs to replace those gone from the defense industry. Aerospace is losing 3,000 jobs a month and the decline will continue through 1996, according to UCLA.

California's jobless rate was 8.6 percent in March, compared to 6.5 percent nationally, and economists expect it to remain higher than the U.S. average for several years.

Southern California's commercial real estate market remains slow because of overbuilding in the 1980s. Though home sales have rebounded, housing prices have not bounced back. Some companies continue to lay off workers in the national move toward streamlining operations, while many others are reluctant to hire.

"Even modest job growth -- say, 10,000 jobs a month -- is going to barely make a dent in what we've lost the last four years," said Adrian Sanchez, a regional economist at First Interstate Bancorp. "The unemployment rate is going to remain stubbornly high."

The recent rise in interest rates and unsteadiness in the stock market also could sting California. Falling interest rates have spurred sales of everything from homes to factory equipment. Some economists expect the national economy's surging performance of the last six months to slow in the next year, dampening demand for California products.

At the same time, economists say California job creation could speed up considerably in the next three to five years.

Several industries have significant growth potential. California's trade and service sectors now account for 60 percent of the state's non-farm employment and will create 90 percent of the new jobs in the next three years, according to UCLA.

Pacific Rim trade will expand steadily, while the North American Free Trade Agreement should increase demand for American products in Mexico, experts say. California's manufacturing base will continue to weaken, but service industry jobs in everything from cutting hair to giving legal advice will grow.

The greatest potential may lie in the promising but unproved world of the so-called information superhighway, economists say. The state has a core computer base and is a leader in such fields as biotechnology and telecommunications.

With intangibles like a strong entrepreneurial spirit and access to venture capital, California could enjoy significant job growth in the burgeoning multimedia field.

"Technology is the wild card," said Lynn Reaser, First Interstate chief economist. "We could see new industries being created in the next 10 years to offset many of the losses in aerospace."

Some of the new service industry jobs will be lower-paying than the aerospace and manufacturing positions being lost, economists say. But those in such fields as business consulting and high-technology could be more lucrative, economists say.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.