U.S., State Economies Still Struggling : California in Worst Slump Since ‘30s; Report Says Jobless to Top 11% by ’93
The lingering recession in California, the worst since the 1930s, is now surpassing the downturn in Texas during the mid-1980s oil bust, and relief won’t occur until after next summer, the UCLA Business Forecasting Project said Thursday.
In its latest quarterly report on the California economy, the forecasting project said the state has experienced a 5% drop in employment since the recession began more than two years ago. By contrast, Texas saw employment drop 3.6% in its 1986 recession, the report said.
Looking ahead, the forecast predicted that California’s total non-farm employment would fall 1.9% in 1992 and 0.9% in 1993, and the unemployment rate--now at 9.8%--will peak at just over 11% in late 1993. Only in 1994 will employment again begin to grow, by 1.7%.
“The state is caught in a vicious cycle, with job losses in key sectors constraining income growth and spending, causing cutbacks in production and more layoffs,” the forecast said.
The current recession is being prolonged by a number of factors. “The cycle has been exacerbated by the downturn in defense spending, falling real estate prices, an unprecedented string of natural disasters (drought, earthquakes, fires, freezes, floods) and, most recently, the Los Angeles riots,” it added.
Noting that relief is not likely soon, the forecast added: “Rebounds in neither California housing, local consumer spending, nor the U.S. economy appear imminent.” It also seems likely that the state will face a new round of defense layoffs, declining housing prices and government shrinkage.
Among the report’s predictions:
* Aerospace employment will continue to plummet, with 30,000 more jobs lost by the end of 1993. With continuing cutbacks in government defense spending, it is likely that employment will continue to fall beyond the mid-1990s, though the rate of decline will ease.
From a 1986 peak of 385,000, aerospace employment has fallen by 115,000 jobs--80,000 of them in the last two years, the report said.
* Housing prices--down 3.7% statewide over the last year--may fall again, but housing starts and public works construction may begin to rise gradually next year. That would more than offset continuing losses in non-residential construction, and employment in this sector may begin to rebound next spring.
* As the real estate market firms up and construction volume increases, the decline in finance employment will slow down. But 11,000 jobs will still be lost in this sector in the next 12 months, mainly because of the merger of Bank of America and Security Pacific National Bank.
* Efforts by the state to balance the budget will cut general fund spending by 5.3% in fiscal 1992-93, matched by cuts in local governments. That will result in a 2% reduction in government employment, or the loss of 37,000 jobs statewide by the end of next summer.
* Personal income in the state will grow 1.5% in 1992, 3.4% in 1993 and 5.6% in 1994.
California’s Doldrums
The construction and aerospace industries will continue to bleed jobs, and the unemployment rate will rise as the state’s lingering recession continues through next year, UCLA economists say. Housing prices will also fall. But personal income is expected to rise slightly. And by 1994, things should be turning up.
Indicator 1990 1991 1992 1993 1994 Personal Income (percent change) +5.4 -0.5 +1.5 +3.4 +5.6 Jobless Rate 5.6% 7.6% 9.2% 11.0% 10.8%
Employment (in thousands)
1990 1991 1992 1993 1994 Construction 651 542 493 492 511 Aerospace 347 313 278 256 244 Services 3,449 3,396 3,382 3,388 3,482 State & Local Govt. 1,713 1,734 1,742 1,723 1,719
Source: Annual Summary of the UCLA Business Forecast for California
