L.A. Economy Seen ‘Muddling Through’ 1990

Mayor Tom Bradley received cautious to downbeat forecasts about the economic health of Los Angeles on Friday, along with a prediction that the area’s population will grow by 3 million in the next decade.

The worst news to emerge from the mayor’s annual “breakfast summit” on the local economy was about the declining aerospace industry and a predicted flattening of the home-building industry in 1990.

“The best of the economic years are behind us, to be sure,” said Mike Salkin, a senior vice president of First Interstate Bank. The local economy will “muddle through” in 1990, he said.

However, the motion picture industry and several other areas of the local economy are expected to do well and the dramatic population growth will prevent a recession in the region, Bradley was told.

The session Friday morning was a gathering of officials of the Los Angeles Area Chamber of Commerce, local business people and city officials; it traditionally is the first step in the Bradley Administration’s financial planning for the new year.

“I think we’re going to be in good shape in the coming year,” Bradley said after the meeting. “We’re cautious, we’re careful, and we manage our finances very well.”

Hardest hit will be the aerospace industry, the largest manufacturing employer in the Los Angeles area, according to Chamber of Commerce figures. The industry peaked in 1987, but it lost 7,000 jobs this year and is likely to lose another 5,000 in 1990, said Jack Kyser, the chamber’s chief economist.

“It’s going to be a hit for our economy, but it’s not going to devastate us,” Kyser said. “The growth rate (for Los Angeles) has slowed down, just like the nation, but we are still showing more vigor than the nation as a whole.”

Kyser took more of a booster’s view of conditions in Southern California than do some East Coast analysts, who see cutbacks in defense spending as a serious threat to the region and have predicted a crash in the real estate market.

“We’re not that negative about what’s going on in the defense industry,” Kyser said. “One thing that people seem to overlook is that we have significant strength in commercial aircraft production in Southern California.”

Although overall aerospace employment numbers are going down, he said, aircraft production and parts manufacturing are increasing.

“All of these analysts are saying, ‘You’re going to get a kick in the pants because your employment is going to drop sharply,’ ” Kyser said. “We’re not getting a kick in the pants.

“It’s not doom and gloom, but it’s much slower growth in this key industry, and we’ve got the potential of losing some subcontractors, some major firms.”

The business and financial services sector is continuing to grow, Kyser said, but turmoil in the savings and loan industry has caused problems for some accounting firms. Law, architecture and engineering firms will be very strong, he said, and tourism will see modest growth. He predicted growth in international passenger traffic at Los Angeles International Airport but said domestic travel will be sluggish.

Next year “is not going to be the best year . . . but it’s not going to be the worst year,” Kyser said.

In the view of First Interstate’s Salkin, who heads the real estate division, 1990 “could be a year in which we muddle through at best.”

Residential real estate, a highly cyclic business, is headed for the type of downturn that usually occurs at eight-year intervals, Salkin said. The last one occurred in the early 1980s, he said.

“The bad news is that the trough in home-building activity is not behind us; it is ahead of us,” Salkin said. However, some indicators suggest that the trough will not be as deep as in other cycles, he said.

“We are worried about overbuilding, we are worried that land prices have peaked and are now coming down. In fact, our good developer clients suggest that they’re not going to rush to buy land now. They’re going to wait three months or six months.”

Housing prices will flatten out, he said, but no precipitous drops are expected.

He predicted trouble for builders of office and manufacturing space, however, saying there is not nearly enough demand to fill structures already completed.

Vacancy rates in downtown office buildings, he said, will get significantly higher in the next five years.