B of A Predicts Decline in Construction

Construction activity in Los Angeles County will decline this year after a three-year boom, but the retrenchment will be offset by substantial gains in employment and consumer spending, Bank of America predicted Wednesday.

Duane Paul, the bank’s senior economist for Southern California, said the overall economic outlook for the county this year is bright because of the diversity of local industries, higher defense spending, more international trade and the sharp declines in oil prices.

However, he told a group of reporters at the bank’s Los Angeles headquarters that construction will experience a cyclical slowdown, with housing permits expected to fall 7.8% to 49,226 from last year’s 53,390. Permits rose 44.5% in 1985. He said non-residential housing also will experience some retrenchment because of high office vacancy rates in Los Angeles County.

Paul said declining oil prices will mean lower consumer prices for gasoline and gas and electric utilities. That will help keep inflation down, said Paul, who is projecting a 3.8% inflation rate for Los Angeles County, down from last year’s 4.8%.

As in 1985, the county’s inflation rate will be slightly higher than the national rate because of higher housing and entertainment expenses.

The economist said personal income will rise 8.2%, which will help fuel a 10.2% increase to $40.64 billion in retail sales. Last year, personal income rose 7.6% and retail sales 8.8%.

Paul said defense expenditures in Los Angeles County would exceed $18 billion this year, compared to $16.7 billion in 1985.

“Despite talk of potential cuts, I see defense spending good for a couple of years. Beyond 1988 is uncertain,” he said.

The diversity of the local economy, he said, will help sustain economic momentum in 1986. Paul also predicted that, by the end of the year, the nation will be registering monthly surpluses in its balance-of-trade position.

The bank’s employment outlook estimates that 135,000 new jobs will be created in the county, up from 114,000 last year. About 35,000 to 40,000 of the new jobs will be in the wholesale and retail trade, 45,000 to 50,000 in services and 5,000 to 10,000 in financial services, government and transportation. Construction employment will be stable or up slightly, the bank said.