O.C. Economic Slump Worst in Two Decades

Despite assurances that the current recession has been milder than earlier downturns, newly revised labor statistics now show that Orange County has lost at least three times as many jobs as were lost during the recession of 1981-82.

In fact, economists said, the job loss could make the slump the worst in at least two decades.

And even after the long-promised recovery arrives, it could take four to 10 years to recover the lost jobs, analysts say. Some sectors of the economy, particularly aerospace, defense contracting and financial services, may never regain the lost employment.

When the final economic figures for the period 1989-92 are tallied, “you’ll probably end up with a period of economic performance that will be worse than any since the Great Depression” of the 1930s, said Ted Gibson, principal economist for the California Department of Finance.

Since employment peaked in June, 1990, the county has lost 89,600 jobs, for a total employment decline of 7.4%. During the 15-month recession that began in July, 1981, the county lost 18,900 jobs, or 2.2% of the total.

“These numbers are staggering,” said Anil Puri, an economist and co-director of the Institute for Economic and Environmental Studies at Cal State Fullerton.

Based on the revised data, local economists predict that the county will not begin to see an economic upswing until mid-summer, and the employment rate might not begin to improve until the end of the year, or early next year.

“This recession has caught a lot of people, from wage earners to white-collar types. It is worse than the early 1980s,” said Peter Swan, chairman of a coalition of Orange County business leaders called together to address the recession. “Real estate is in total decline. Our financial institutions are not strong. We are overbuilt in hotels, hospitals, housing and commercial buildings. We need to get a handle on all this.”

Though the 5.6% Orange County unemployment rate is far lower today than the 9.4% unemployment peak in January, 1983, economists say the current downturn has caused more havoc.

This recession is distinct because it has cut such a wide swath through the ranks of white-collar workers who have been unscathed by previous slumps.

“There is no place that anyone can go these days and feel absolutely secure in the knowledge that if you put in a good day’s work and do a good job, you will have a job six months from now,” Gibson said.

The retail, finance and service industries, which escaped major damage in previous recessions, have been hard hit by this one, with 12,700 jobs, 14.7% of the total in the service sector and retailing, disappearing between February, 1991 and February, 1992.

The new statistics dramatically boosted the number of jobs lost last year across California to 333,000--six times as many as previously reported. Three-quarters of those jobs were lost in Los Angeles and Orange counties. Orange lost a record 45,600 jobs in 1991, four times the original estimate of 11,300, according to the California Employment Development Department.

An undercount of failed businesses, the Christmas 1990 cold snap and the recession’s toll on small employers and new companies were blamed for the discrepancy in the number of jobs lost.

“The new statistics represent the largest downward revision we’ve ever seen,” said Brian Cromwell, an economist for the Federal Reserve Bank in San Francisco. “The recession is now worse than the 1982 downturn and has the same order of magnitude as the severe recession that coincided with the U.S. withdrawal from the Vietnam War.”

The adjusted figures also stunned local business leaders, who had been treated to a barrage of much more optimistic data and predictions from Washington, Sacramento and Santa Ana. But some said the figures simply confirmed their suspicions that the recession in Southern California was far worse than government statistics had indicated.

“It’s shocking, but not that surprising. It just confirms what we thought was true,” said Lucien Truhill, president and chief executive officer of the Orange County Chamber of Commerce.

Growth will continued to be constrained, Truhill said, unless government and business can tackle the high cost of housing, workers’ compensation, and environmental regulations, which are especially devastating to small to mid-size companies.

“Now, we have got to compete,” Truhill said. “We have been fat and sassy for 15 years. We are not used to this. . . . We need to convince companies that are (already) here to stay, and bring in new companies.”

After two decades of blistering growth, Orange County business leaders have never before had to think about recruiting new companies or fighting to keep employers here. Now, they must compete with other states that are trying to lure corporate cash cows with promises of cheaper land, fewer regulations and lower labor costs.

“There are economic development board posses running all over this county, looking for businesses that are thinking about moving and (they are) armed with all sorts of incentives,” said Richard B. McKenzie, a professor at UC Irvine’s Graduate School of Management. “Twenty years ago, California did not have to worry about these sorts of competitive movements.”

In a nascent attempt to fight the job drain, key business leaders this year formed the Orange County Jobs Coalition to access the impact of the recession and make recommendations to government.

They are particularly concerned about the steady exodus of manufacturing jobs from the county. Locally, the percentage of such jobs has shrunk from 36% of the work force to 27% since 1980.

“When you cut manufacturing, you lose--in addition to wage earners--attorneys, accountants, managers, and professionals,” said Swan, an executive at Pacific Scientific Co., a Newport Beach manufacturer of electronic equipment.

“There has been a real erosion of buying power. When that happens, tax revenue falls and that affects schools, streets and government,” Swan said. “This is the trickle-down theory in reverse.”

The undercount of vanishing jobs could explain why the recession seems to have hurt more than the government has acknowledged--and why the long-promised recovery has been so slow to materialize, economists said. It also portends that the recovery will be feeble when it does come.

“California has been hit a lot worse this time than in past recessions and it will take longer to recover,” Puri said.

While economic activity and personal income are expected to increase in Orange County by the third quarter of this year, the job rolls might not fatten until the end of the year or early next year, Puri said. Others predicted that the local recovery will lag behind the country by six months.

In a slightly more optimistic forecast, Chapman University’s Center for Economic Research estimated that 9,000 jobs would be added by the end of the year, 1,000 less than their original projection for 1992.

Esmael Adibi, the director of the center, predicted that employment will increase by 3.5% in 1993, less than half the 7.6% growth rate during the 1983 recovery. Still, at that rate, it will take some three to four years before most of the lost jobs are recovered, he said.

That growth could be limited, economists say, by the potential for deeper defense cuts, a sluggish real estate market and a weak international market.

Orange County, which receives about $3 billion in defense contracts per year and employs about 83,000 defense workers, is bracing for another round of post-Cold War cutbacks. And, although the construction industry has hit rock bottom, an upturn is nowhere in sight.

THRIFT SALE: Federal regulators will sell HomeFed Bank, which has fallen on hard times. D1