State's Economic Rebound Lags Behind Nation's Pace : Recession: Experts cite several pressure points as reasons why a recovery remains elusive in California.

By JAMES BATES

June 11, 1991 12 AM PT

TIMES STAFF WRITER

At Fleetwood Enterprises in Riverside, the work force has been slashed by 2,000 in the past year, and restrictions on hiring and travel remain firmly in place. Although sales appear to be picking up, the recreational vehicle maker’s executives say high state and national jobless rates trouble them.

At Wet Seal, an Irvine-based chain of women’s clothing stores, sales are stronger in Northern California, but remain slow in its primary market of Southern California. Until things improve, the chain’s top officials must approve all hiring decisions, even for store clerks.

“In extraordinary times, you take extraordinary measures,” said Alan A. Weinstein, Wet Seal’s chief financial officer.

Welcome to the recovery, California-style.

While a slew of statistics and official statements last week signaled that the nation’s 11-month economic recession is about to end--if it hasn’t already--signs of recovery are proving more elusive in California.

Evidence of a rebound in the nation’s economy is growing. May retail sales were reported stronger, while purchasing managers indicated in a survey that the economy is expanding again. Unemployment rose last month, but the number of people working nationwide has begun to grow again. Federal Reserve Chairman Alan Greenspan speculated that the strength of the economic recovery could surprise people.

So could California’s performance. Accustomed to being at the forefront of economic growth, the state now finds itself in the unfamiliar role of a laggard.

This is not to say that economists and business experts expect the recovery to bypass the state. Most believe that the state will rebound this year along with the national economy.

Economists see California at best placing somewhere in the middle of the pack among states in growth during the initial stages of recovery. The state should outperform the battered Northeast, but lag well behind such fast-growing Western states as Utah, Washington, Oregon, Idaho and Nevada.

“We’re not going to play lead locomotive,” said Jerry L. Jordan, chief economist with First Interstate Bancorp in Los Angeles.

Several pressure points on the state economy are causing that to happen:

* Persuading consumers: The Times Poll, conducted May 18-21, shows that most Californians are no more optimistic about the economy now than they were last October. Just 13% rated the state’s economy as “good,” compared to 17% eight months ago. Sixty percent of the respondents rated the state’s economy as neither good nor bad, but “in-between,” while 26% rated it as bad. When asked how the state’s economy would be three months from now, 31% said better, 21% worse and 45% said it would be about the same.

* Real estate crunch: Although home sales are picking up, most of the state’s metropolitan areas are plagued by commercial real estate woes with as many as one in four offices empty in some areas. Banks are wary of making construction loans, and savings and loans, once major suppliers of money for housing construction, are virtually out of the business because new federal thrift rules discourage it. The recovery in home sales could also be slowed by rising interest rates.

* Job losses: While the U.S. economy added jobs last month, California continued to lose them. Last month, the state lost 4,600 jobs as a result of continued weakness in manufacturing and construction. Apple Computer Inc. in Cupertino plans to lay off about 1,500 workers by year-end. Retailing giant Sears, Roebuck & Co. will shut its regional center over the next 18 months, resulting in 2,000 lost jobs in East Los Angeles and Montebello. Bank of America is moving its 1,300-employee credit card center in Pasadena to Arizona.

* Freeze and drought: Farmers are planting less because of water shortages, with cotton farmers planting about 20% fewer acres and rice growers using about 25% less acreage. The devastation of last winter’s freeze continues. State officials estimate that 14,000 more people would have been working last month in the San Joaquin Valley had the freeze not happened.

* Business caution: There is little statistical evidence showing whether companies are shifting toward major new capital spending and hiring programs. Anecdotal evidence suggests caution and that companies are waiting to see how strong the economy is in the second half of the year before changing course.

Some experts are not troubled by the sluggishness of the state’s economy as the recovery takes form. Wells Fargo Bank chief economist Joseph A. Wahed said the state’s economy is too powerful to be held back for long. He sees California outperforming the nation again by mid-1992.

“It’s like when two people run a 100-yard dash,” Wahed said. “For the first 20 yards they are neck and neck, then one runner takes off at 30 yards. We are that runner who takes off after 30 yards.”

Still, a growth rate undistinguished from most other states is atypical for a state so used to outperforming the rest of the nation. With by far the largest economy among the 50 states, as well as one of the most diverse, California set the pace through most of the 1980s.

But last month, a Federal Reserve Board report described California’s economy as showing “continued weakness” while other Western states were showing strong growth. A recent Arizona State University study showed that California’s non-farm job growth in March was virtually flat, ranking 30th among the 50 states and last in the West. A year earlier, the state ranked 18th in job growth.

“California typically bounces back more strongly than the U.S. We just grow faster on average, but now we will be growing about the same,” said UCLA economic forecaster David Hensley.

Fleetwood executives cut the recreational vehicle and manufactured housing maker’s payroll from 12,000 last year to 10,000 now. Despite some hopeful signs, they remain unpersuaded that the economy has turned up permanently in California, the state that accounts for the biggest chunk of Fleetwood’s RV sales.

“We’ve seen a slight increase in recreational vehicle sales. It’s not enough to convince us it’s a real turnaround, but enough to give us encouragement,” Fleetwood President Glenn F. Kummer said.

The Times Poll, which questioned 1,679 Californians in May, showed that spending could be sluggish into the summer. While 25% said they will be spending more in three months, almost as many--20%--said they will be spending less. About 54% indicated that their spending habits would remain largely unchanged.

“Consumer confidence in California isn’t getting worse, but there’s no sign of a big rebound either,” said Times Poll Director John Brennan.

Even some companies that continue to grow are reluctant to attribute it to overall improvement in the economy.

Joseph Levy, chairman of Fresno-based Gottschalks Inc., a department store chain located largely in the San Joaquin Valley, attributes the chain’s growth not to any improvement in the economy, but rather the misfortune of other struggling retailers.

“We feel we are taking it away from some of our weaker competitors. There just isn’t robust movement in the economy of our trade area,” Levy said.

As steep as the downturn has been in the state, growth appears to be continuing. Wells Fargo projections show that the number of non-farm jobs created in the state will fall sharply from 300,000 last year to between 20,000 and 50,000 this year. Next year, the bank predicts that number will rebound to 233,000.

Some industries seem relatively immune to recession. Computer software, which is driven more by the quality of products than by big picture economic factors, remains relatively unaffected.

Scott D. Cook, chief executive of Menlo Park software maker Intuit, which employs about 215 workers, said his firm’s sales to software retailers plunged in February and March. Cook attributes the plunge to reluctance by retailers to order during the war. Since then, he said, sales have soared and employment could increase by 40% in 1991.

Companies generally are being cautious in their second-half outlooks. Conner Peripherals, a San Jose maker of data storage equipment for laptop and small “notebook” computers and one of the nation’s fastest-growing companies, surprised securities analysts in February by warning that the year will be slow.

Chief financial officer Carl W. Neun said that view still holds, although he expects some recovery in the second half of the year. Neun said the company is still planning to build a plant in Malaysia.

Two major wild cards remain for the state economy--the drought and ongoing state and local budget problems.

In addition to the effect on farms, the drought could make new construction permits harder to obtain in areas where water is scarce. The drought also hurts tourism in mountain and park areas.

Large cuts in public payrolls loom as elected officials scramble to close budget gaps. So do tax increases, such as the recent Los Angeles tax on real estate sales that will add about $1,000 to the sale price of a $200,000 home.

The prospect of higher fees to pay for budget shortfalls has some concerned that California’s business climate will deteriorate further, accelerating the loss of companies to other states where it is cheaper to do business and where housing is more affordable. One recent McKinsey & Co. study showed that the state has already lost about 18,000 aerospace jobs in recent years as companies pulled up operations to move to other states. Overall, the study said that the state has lost 60,000 aerospace jobs since the mid-1980s.

Despite the bad news, there are a few positive developments showing up in the state economy. Tourism is reported to be picking up in some areas, although a glut of hotels has many offering steep discounts to travelers.

Whether the resurgence in home buying will lead to new construction, and additional construction jobs, remains unclear and could prove a key factor in deciding how well the state bounces back. Housing remains a buyer’s market in home sales, and bloated inventories are still being worked off in such areas as the Inland Empire.

“The housing market is recovering here, and there are some indicators pointing to quite a dramatic turnaround. If housing was one of the key factors in causing our sharp downfall, that would point to a somewhat brighter future in the second half of the year,” UCLA’s Hensley said.

How Californians View the State’s Economy

The Los Angeles Times Poll asked 1,679 adult Californians how they viewed the state’s economy, by telephone, May 18-21. The margin of error on sample percentages is plus or minus 3 percentage points. Trend comparisons are from past Times Polls of Californians.

May, ’91

Good: 13%

In Between: 60%

Bad: 26%

Oct., ’90

Good: 17%

In Between: 53%

Bad: 28%

Sept., ’90

Good: 18%

In Between: 54%

Bad: 24%