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State to Outpace U.S. Economy--but at a Slower Rate, Bank Says

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Times Staff Writer

California should continue to outperform the nation in economic growth and low unemployment through 1993, Security Pacific National Bank predicted Thursday, but that performance is not likely to be as dynamic as it has been in the past.

Among the bank’s other predictions are a slowdown in commercial and residential construction activity and a 6% annual appreciation rate for resale homes, which is significantly lower than the state and Orange County, in particular, have experienced in the past 5 years.

The report, distributed to about 300 Orange County business executives in Irvine on Thursday, also criticized the state for a lack of affordable housing, an inadequate transportation system and a poor elementary education system. The economists said that such problems will affect California’s ability to attract business and workers unless improvements are made in the near future.

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The 5-year forecast does not deal with individual counties, but Kathleen B. Cooper, Security Pacific’s executive vice president and chief economist, said Orange County’s performance trends should parallel those of the state.

And Robert H. Smith, president and chief executive of the bank and vice chairman of its parent, Security Pacific Corp., said exceptionally high housing prices and an increasingly congested transportation system will continue to force blue collar workers and traditional manufacturing jobs out of the county. They will be replaced with higher-paid professionals in research and development and corporate and financial services jobs, he said.

Overall, according to the 5-year report, California’s economic growth as measured by the Gross State Product--the value of all goods and services produced--will slow to around 3% a year when adjusted for inflation. That compares to an average adjusted growth rate of 5% a year for the past 5 years.

Inflation will remain low--3.5% to 4% annually--driven mainly by housing, transportation and medical care costs--and personal income growth will drop to an average of 3% a year from the 4.5% annual average of the 1983-88 period.

Businesses in the state will add new jobs at the rate of about 2% a year, compared to a 3.9% average annual job growth for the past 5 years.

Finally, the state’s population growth rate, while still twice the national average, will slow to about 1.6% a year from the 2% annual rate of the past 5 years.

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The population increases will come largely from the state’s own birthrate and immigration. The report says migration from other states will be reduced because of several factors, including the high cost of housing, a slowing of job creation “and negative perceptions as to the quality of life in California . . . smog, crime, poor schools, crowded freeways, etc.”

One immediate result of that slower population growth, the report says, will be lower levels of new housing construction and a drop in the demand for office and retail space.

The residential resale market, however, will not be greatly affected because it depends more heavily on internal economic growth, labor mobility and investment demand than on population increases.

New residential construction in the state, the report said, will average about 220,000 units a year through 1993--down 15% from the levels achieved between 1983 and 1988. Multifamily dwellings--generally rental apartments--are expected to account for about 40% of the units, compared to 50% for the past 5 years.

Security Pacific expects the price of resale homes in the state to climb about 30% over the next 5 years--about 6% a year. The annual average appreciation rate between 1983 and 1988 was 8%, with a staggering 20% appreciation recorded last year.

Orange County housing prices, according to economists at Chapman College in Orange, have risen significantly faster than the statewide average, with a 24% gain in 1988 and an annual average since 1983 of 10.4%.

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