Economist Paints Bleak Outlook for San Diego : Recession: More jobs to be lost, housing values to continue slide, Bank of America expert predicts.

The city’s economy will get worse before it gets better, a major bank economist told San Diego business leaders Wednesday, echoing a rising consensus among experts that the region will see more jobs lost and a continued slide in housing values through at least the first half of 1993.

Bank of America senior economist Frederick Cannon told the Greater San Diego Chamber of Commerce gathering that San Diego’s economy--and Southern California’s--are in the grip of the worst and longest-lasting recession since World War II, with no real prospect of a recovery for another nine months.

Once the recovery begins, Cannon said, it may take four or five years for the local economy to return to the levels of the late 1980s in terms of jobs and economic growth. That pessimism comes despite the beneficial effects that San Diego can expect from the North American Free Trade Agreement if passed, Cannon said.

The gloomy forecast is similar to dire predictions issued recently by other economic pundits. And they probably come as little surprise to San Diegans, who are reeling from a succession of bad news in the form of large-scale defense and aerospace layoffs at employers such as Hughes Aircraft, General Dynamics and Rohr.

“We are on the wrong end of three major events in the U.S. economy: aerospace industry cutbacks, the commercial real estate collapse and significant price declines in housing prices,” said Ross Starr, professor of economics at UC San Diego. “Other regions are experiencing some of them, but California is going through all of them intensively.”

Cannon’s talk was given on the same day that the San Diego Assn. of Governments (Sandag), a regional planning group, said it was downsizing its projections of population and housing growth in San Diego County over the next two decades in light of the recession.

Sandag planner Jeff Tayman said the agency was retracting its prediction made last year that a local economic recovery would begin this year. San Diego’s economic rebound may not begin until 1994, Tayman said.

Paul Tryon, executive vice president of the Building Industry Assn. of San Diego County, a trade association of 930 companies in the construction business, said the industry is experiencing the “toughest period that we’ve experienced in decades” and that there is little prospect for appreciable improvement in 1993.

“Housing construction is down to World War II levels in San Diego and statewide,” Tryon said.

Total construction jobs in the county as of August were 47,200, down 25% from the 63,800 jobs in 1989, the peak year. The number of new housing units, multi- and single-family combined, to be completed this year may only total 6,500, the lowest in a decade. Construction of commercial buildings--offices and retail centers--has come to a virtual halt.

Prices of new houses in San Diego subdivisions have dropped an average 10% over the last year, despite a record low number of unsold houses. Median prices of existing houses in the county have been flat for the past three years.

Raford Boddy, professor and chairman of San Diego State University’s department of economics, said problems in the construction industry have far-reaching consequences for the economy because of the industry’s multiplier effect--its ability to create jobs in related industries.

“Construction jobs may comprise only 5% of the job base, but it’s all the other things that go into the houses they build, the cars in the driveways, the refrigerators and furniture inside, that create all the jobs,” he said.

Boddy said he expects a “long, drawn-out” recession and recovery.

Cannon said he is pessimistic about 1993 because the regional economy has yet to fully adjust to the loss of basic manufacturing jobs at places such as General Dynamics and Rohr. That’s because there is a “lag effect” among the suppliers and service firms that rely on the big defense and aerospace industries for their livelihoods.

Cannon also warned that San Diego’s much-vaunted economic diversity could no longer be considered a buffer against hard times.

Housing values have a way to fall yet, Cannon said, because prices are still too high for the “effective demand,” despite the lowest mortgage interest rates in 20 years. “We’re going to see a further break in housing prices next year,” Cannon said.

The economy is also in the midst of a far-reaching “structural recession” that defies the traditional pattern of bust and recovery, Cannon said.

Another reason Cannon is pessimistic about any near-term recovery is that he expects San Diego’s and California’s population to continue to grow despite bleak employment prospects, keeping the pressure on the job market.

San Diego has lost nearly 50,000 jobs, or 5% of its 1 million-job employment base since late 1990. That’s better than California as a whole, where about 700,000 jobs have been lost, or 8% of the total two years ago. About 80% of the state’s job losses have occurred in Southern California.

Associated Press reports contributed to this story.