Southland’s Economy Could Slow Next Year, Experts Say, but Recession Is Far From Certain

The worldwide stock market tumble will mean an economic slowdown in Southern California and the nation next year, but a recession is by no means a sure thing, several economists and financial executives said Friday.

But Southern California, because of a diverse economy and growing population, probably will fare better than most regions, they said. The stock market’s fall will not kill corporate takeovers, experts said, but they will become less plentiful and more expensive.

“The economy will slow a bit. I didn’t say recession, but the growth rate of the U.S. economy will slow,” BankAmerica Corp. Chairman A. W. Clausen told about 700 business people gathered Friday at the annual business outlook conference sponsored by the Los Angeles Area Chamber of Commerce.

“I believe we will not only weather the currently unsettled economic environment, but we will grow stronger from the experience, more determined to once again establish the stability each of us seeks,” Clausen said.

Chamber economist Jack Kyser said he is “cautiously positive” about the economy, estimating a 40% chance of a recession next year. But, he added, “there is one very important factor in the recent economic picture for California and Los Angeles, and that is population growth. Market crash or not, this is not going to go away.”

Separately, Wells Fargo Bank predicted that California will record its sixth consecutive year of economic growth in 1988 and will perform better than most other regions. But “the coming months will not be business as usual,” said Joseph A. Wahed, the bank’s chief economist, “and results will be uneven for California business. While many companies will have an improved bottom line, others will find the going tougher in 1988.” Business activity will be strongest in Southern California, particularly Orange, San Bernardino, Riverside and San Diego counties, he said.

A key question that has yet to be answered is whether consumers, who have powered economic growth in the past few years, will continue spending, said E. Harlin Smith, vice president of investor relations for Carter Hawley Hale, parent of the Broadway. “I’m optimistic that the consumer will not go into hibernation,” Smith said, noting that sales at his company’s stores have been better this month compared to October. “On the other hand, we cannot count on the consumer to continue to support the economy.”

Bank of America Senior Economist Duane A. Paul predicted that the weak dollar would help the tourism and agricultural industries, attracting foreign visitors and opening foreign markets.

For the real estate and construction industries, “to some extent the party is over,” said Michael S. Salkin, vice president for risk management and appraisal for the real estate division of First Interstate Bank. “We’re going down, but we’re not looking for any major (real estate) downturn in California,” he said.

Security Pacific National Bank Senior Economist Richard G. Kjeldsen looked for a continued decline in the strength of the dollar relative to foreign currencies, predicting as much as 20% decline from current weak levels. But the bottom won’t fall out, for several basic economic and structural reasons, he said.

“We’re still a provider of world liquidity. We still sell a lot (of dollars), just not as many as three years ago,” Kjeldsen said. “One thing we still produce better than everyone else is dollars.”