1990 1991 : REGIONAL REPORT : Recession Seen as Brief and Mild in Southland : Analysts Expect Los Angeles County to Take Hardest Hit, Orange County to Suffer Less
Any notion that Southern California was recession proof disappeared in 1990 in the wake of rising unemployment, falling real estate values and virtually flat economic growth.
Although there is some disagreement as to whether the region fell into a recession last year, economists do agree that Southerj California will experience a relatively mild and brief recession during the first half of 1991. “It won’t be as steep a decline as in previous recessions,” said Adrian Sanchez, regional economist at Security Pacific Bank in Los Angeles.
“We haven’t hit bottom in Southern California but we will do so early” in 1991, said Jack Kyser, economist at the Los Angeles Area Chamber of Commerce.
The beginning of 1990 offered few indications of the economic pain the state would suffer later in the year. In fact, “we started 1990 very strong,” Kyser said. But, “over the course of the year things got shakier.”
The sagging residential and commercial real estate markets took its toll on the construction workers--nearly 30,000 of whom lost their jobs last year. The once-robust aerospace industry laid off an estimated 20,000 workers statewide. In the five-county Los Angeles area alone, an estimated 17,000 jobs in aerospace and high technology were lost.
The layoffs have hit nearly every major aerospace firm, including Lockheed, Northrop and General Dynamics. McDonnell Douglas, the nation’s largest defense contractor--and, perhaps most troubled--has laid off about 8,000 people at its Long Beach plant alone. Gerald Miller, manager of the economic development bureau for the city of Long Beach, said the impact of the layoffs will be felt outside of Long Beach because only a small percentage of the workers lived in the city.
By November, the state’s unemployment rape had risen to 6.7%--the highest level in four years. And the state that once created about 400,000 jobs a year in the mid 1980s had actually lost 44,000 jobs by November.
The severe problems in real estate and aerospace were in addition to weakness in service sector industries such as retail, financial services, government and international trade, which had all softened the blows of previous recessions, Sanchez said. “The bellwether industries won’t be growing anywhere as strong” as they have in the past.
As far as specific areas, Los Angeles County, where most of the region’s troubled aerospace industry is located, should be hardest hit, Kyser said. Orange County will suffer less but still “stagger” from losses in the construction and real estate industries. Riverside and San Bernardino counties will still manage to grow--but at a slower pace--as a low-cost alternative to its coastal neighbors. The Greater San Diego Chamber of Commerce expects the area’s economy to slow in 1991 but still outpace the state.
Statewide, the economy is expected to come to a virtual standstill this year after growing only 1% to 1.5% last year, Security Pacific’s Sanchez said. This year should see an additional 40,000 construction workers lose their jobs as well as an additional 75,000 manufacturing employees.
The housing industry is expected to hit bottom this year before begining a turnaround--albeit a slow one. “That will certainly be one of the first industries to turn around,” Sanchez said, pointing to lower interest rates as inducements for home buyers. But, he said, “it won’t be as strong as in past years.”
The aerospace and high-tech industries will also remain on shaky ground and are expected to shed an additional 15,000 jobs in the Los Angeles area. “Presuming that we will find a peaceful solution to the Mideast crisis, California’s dependence on defense-related research and development will be in for some fundamental changes,” Miller said.
There are some economic bright spots, notably the region’s high-profile entertainment industry, which is expected by many to remain relatively unscathed by the recession. And the flow of foreign investment into Hollywood--such as Osaka-based Matsushita Electric Industrial’s recent acquisition of MCA--is expected to help finance future projects. “You will see fairly decent growth in the motion picture and television production industry,” Kyser said.
Despite financial crunches at local and state governments, massive public works projects are expected to pump billions into the regional economy this year. In Los Angeles County alone, an estimated $2 billion will be spent on highway and mass transit projects, Kyser said.
And while the aerospace industries and others retrench, many economic sectors of the economy will continue to grow in the long term.
“1991 is going to be a year of extremely slow growth,” Kyser said. “But it will also be a transition year. You are seeing the local tourist industry planning for expansion, major investment in mass transit, and the ports remains strong.”
SOUTHERN CALIFORNIA ECONOMIC INDICATORS Economic statistics for Los Angeles, Orange, Riverside, San Bernardino and Ventura counties. Aerospace/High Tech Employment Average in thousands ‘87: 423.5 ‘88: 405.5 ‘89: 392.4 ‘90*: 375.7 1991*: 360.7 Source: Los Angeles Area Chamber of Commerce *Estimated Taxable Retail Sales In $ billions ‘87: 73.7 ‘88: 78.8 ‘89: 85.2 ‘90*: 90.8 1991*: 96.3 Source: Los Angeles Area Chamber of Commerce *Estimated Housing Unit Permits In thousands ‘87: 125.0 ‘88: 131.6 ‘89: 115.7 ‘90*: 75.9 1991*: 72.6 Source: Construction Industry Research Board *Estimated
