California Is Nearing the Edge of Recession, UCLA Forecast Warns

The double whammy of a severe housing construction downturn and a faster-than-expected slowdown in aerospace is pushing California to the brink of recession, UCLA forecasters warned Thursday.

However, the school’s economic forecasting unit took pains to note that its view remains considerably more pessimistic than that of some others, who still believe that the state’s growth in population and employment is strong enough to weather the current storm.

And, despite much higher than expected slowdowns in construction and aerospace, the UCLA forecasters stopped short of predicting an outright recession by 1992, seeing instead very slow growth for the next two years.

At the end of last year, the UCLA economists were buoyed by continuing strength in California’s real estate industry and predicted steady if unspectacular growth. But in the first three months of this year, housing construction took a nose-dive, housing sales slowed and home prices softened significantly. The annual rate of starts for new single-family homes fell to 125,000 in April from 160,000 in December.

The housing slowdown could lead to thousands of layoffs in the state’s huge construction industry, the UCLA forecasters said. The state unemployment rate was predicted to rise from 5.6% this year to 6.7% by 1992--putting it a full percentage point above the projected national rate of 5.7%.

Meantime, the aerospace industry, in the midst of restructuring to reflect shrinking Pentagon budgets and an end to the Cold War, is expected to lay off 20,000 California workers by the end of this year. That doesn’t count the effect on jobs at thousands of aerospace subcontracting firms throughout California.

“It seems that defense contractors are not going to wait until the Feds make up their minds about what programs will survive in the 1990s but are going ahead with consolidations and layoffs,” the UCLA forecast said.

Aerospace and housing were two driving forces behind the big rise in California employment during the 1980s. By 1992, they may shed 140,000 of the 350,000 jobs they added during the last decade, the UCLA economists predicted.

The forecast said it was unable to find factors strong enough to offset the general downturn in business conditions. Service, trade and high-tech industries will be unable to generate enough growth to take up the slack, it predicted.

The UCLA economists also noted that help-wanted advertising, as measured in the Los Angeles Times, is reflecting the worsening job market in Southern California. The number of help-wanted ads run by The Times in the first five months of this year was down 7.2% from the year before.