Fed’s Forecast for California: Bleak : Economy: The region’s bank president testifies before a Senate panel in an unprecedented gathering of Fed officials.

Despite recent signals that the national recovery is gaining momentum, the head of the Federal Reserve Board’s western regional bank painted a particularly bleak picture Wednesday of California’s economy and held out little hope for a quick turnaround.

San Francisco Fed President Robert T. Parry and other regional bank presidents assessed the state of the economy in an unprecedented ensemble appearance before the Senate Committee on Banking, Housing and Urban Development, prompting an outcry from Republicans who said they fear that Congress is attempting to meddle in monetary policy.

In testimony delivered to the committee, Parry said that, while individual sectors of the California economy have been singled out for blame, employment problems in the state reach into a wide range of industries, including the service sector, manufacturing and finance.

The Bureau of Labor Statistics reported last Friday that unemployment in California remained stubbornly high in February, rising 0.3% to 9.8%.

At the same time as the 12 Fed presidents were testifying, the Federal Reserve Board released its assessment of the state of the economy in the opening months of 1993, reporting that its survey of businesses in the region offered a similarly gloomy account.

Parry made it clear that the impact of the recession in California--normally the economic engine that leads not only the West but the national economy--was dragging down much of the region.

Reviewing one segment of the economy after another, he offered few bright spots to suggest that any one sector is strong enough to lead the state into recovery.

Indeed, the only mitigating factors, he said, are activities linked to the state’s sizable foreign trade. He said that “total import and export traffic” in the state in 1992 showed a 10.1% increase over 1991, climbing to $192.5 billion.

The recession in California has been the longest and deepest since World War II, he said, and the state has suffered a loss of 568,000 jobs since January, 1991, a drop of 4.7%. And last month, when total employment in the United States increased by 365,000, California employment fell by 4,600 jobs.

Parry drew a dark contrast between the current problems and the recession that followed the cutback in defense spending toward the end of the Vietnam War more than 20 years ago.

At that time, the recovery began in California two months after it showed up nationally, even as defense cutbacks continued for about four more years. Now, the national economy has been considered to be in a recovery for 23 months and the state is less dependent on defense spending, but the fruits have yet to turn up in California.

In the early 1970s, defense accounted for 11.5% of the state’s production; now it accounts for 7%.

In the 1970s, Parry said, California “managed to stage a robust recovery” without a pickup in defense spending.

“This suggests that, if defense cuts were the state’s only problem, then California’s economy would be expected to recover along with the national economy,” he said in his written testimony. “But there are other problems as well. Construction and real estate also have been hit hard this time around.”

He said that 31% of the construction jobs that existed in the state two years ago are gone, the decrease in defense spending is likely to continue for “a few years more, and problems in commercial real estate are expected to last even longer.”

While the bank presidents presented primarily statistical information about the economic conditions in each of the 12 bank districts, the invitation by the committee stirred up an angry debate among Republicans expressing concern that the Senate’s inquiry could be a first step into a congressional role in setting interest rates by pressuring the Fed.

Calling the hearing “an arrogant display of congressional power,” Sen. Connie Mack (R-Fla.) said: “No one should be fooled by this. The purpose of this hearing is a coup d’etat on fiscal policy. It is a naked attempt to intimidate the Federal Reserve into an easier monetary stance in order to offset the contractionary effects of President Clinton’s high tax fiscal policy.”