Economist Paints a Rosy Portrait of O.C.’s Future : Forecast: Kenneth Leventhal & Co. executive differs from others when he predicts healthy growth and development.
Like most economists, Walter Hahn has his own way of drawing a picture by connecting the numbers. And the Kenneth Leventhal & Co. economist paints a pleasant portrait of Orange County contrasted with the sketches of some of his counterparts.
Unlike Chapman University economists, who foresee a new recession as early as 1996, Hahn predicts a period of fairly healthy growth and development beginning late this year and continuing to the end of the century before a mild recession sets in.
One result of that boomlet, Hahn says, will be a mild increase in home building and buying, and a strong increase in real estate values--a major underpinning of the Orange County economy. Also, leaning heavily on his premise that the recovering national economy will create employment opportunities here, Hahn foresees all of the 75,000 jobs lost in Orange County since 1990 being recovered in the next 42 months.
That’s a lot of jobs. And with them, Hahn predicts, will come a revival of the county’s moribund residential real estate market, a secondary burst of construction hiring and a renewed growth cycle that will bring even more employment.
The situation won’t be like that of the go-go 1980s, Hahn says, a refrain that most other economists also sing. The fuel that powered the county’s economic engine for much of the past decade has simply run out.
“Aerospace and defense spending goosed us in the ‘80s,” Hahn said, “and that spending is going the other way now. We also benefited from the gross overbuilding of homes and non-residential projects like office towers and hotels. All that hiring and construction spending gave a big boost to the whole economy.”
Hahn, like most other economists and development industry analysts, says that commercial and industrial construction is dormant in Orange County and will remain so for several more years. “What will help pull us out of this recession is housing demand . . . and the improving national economy,” Hahn said. “Most of the goods and services produced in Orange County are sold elsewhere, so as other economies get better, the dollars will begin circulating again in our local economy.”
In 1991 and 1992, when dollars weren’t circulating, Orange County employers slashed payrolls by more than 75,000 positions, according to preliminary state Employment Development Department tallies. Hahn estimates that 1993 will see the loss of another 5,000 local jobs before the improving economy enables businesses to grow again.
When the growth spurt starts it won’t be as heady as the boom of 1983-89, Hahn says, but should be strong enough to bring 93,000 jobs to the county by the end of 1996. If his guess is correct, that would boost total employment in the county to a new high of 1,217,500 jobs, or 12,400 more than in 1990--the previous peak year--when the EDD counted 1,205,100 jobs here.
Hahn, who heads Kenneth Leventhal & Co.’s Orange County real estate consulting practice, said he expects to see housing production in the county double to about 12,000 units in 1995 from 6,000 in 1992, then jump to 15,000 units annually through 1998 before declining again as the economy heads for what he calls an inevitable recessionary readjustment.
He said he disagrees with economists who have predicted a new recession as early as 1996, in part because he doesn’t think the Clinton Administration will allow one to occur in a presidential election year. Also, he simply doesn’t read the signs the same way as some of the more pessimistic prognosticators.
“Among other things, the overall California economic slump and the recession in the Northeastern states have been a drag on Orange County, but both will start taking off in late 1994 or early 1995,” he said. “That will be giving Orange County a boost by 1996.”
The biggest local factor holding growth down, Hahn said, is the continued oversupply of commercial real estate. He expects that situation to continue for at least four more years until business formation and job growth fill up the empty office space and push rents high enough to make construction profitable again.
By the time Hahn’s predicted recession begins in the year 2000, he said, payrolls within Orange County will have swelled to 1.3 million jobs--an average annual increase of 2.5% for the six years from 1994 through 1999. By comparison, the average annual job growth rate from 1885 through 1990 was 4%.
“Basically,” Hahn said, “there are some more good years coming” for the Orange County economy before an “almost certain recession around the end of the decade. A recession is necessary because things get out of balance in periods of growth.”
The recession that Hahn is forecasting would be a mild one. His best estimate for job losses in the year 2000 is a 0.8% drop to 1,292,500. That would represent a one-year loss of just 10,000 jobs, or 33% fewer than were pared from local payrolls in the relatively weak 1982-83 recession.
Increased Hiring... As Orange County climbs out of the recession, new jobs are expected to increase through the end of the decade. Change in size of county business payrolls from previous year.
Same County, Different Outlook In a departure from most economists, an expert at Kenneth Leventhal & Co. predicts a period of growth and development beginning late this year and continuing to the end of the century before a mild recession as early as 1996. Employment Outlook Leventhal expects a strong increase in new jobs through 1996; Chapman University not only predicts a tapering of job growth a year earlier but sees lower increases overall. Kenneth Leventhal & Co. / percent change Chapman University / percent change Building Permits An analyst at Leventhal is far more optimistic about new construction during the next five years than are economists at Chapman. Kenneth Leventhal & Co. / percent change Chapman University / percent change Comparing Outlooks In actual numbers of jobs, Leventhal predicts creation of 133,000 jobs in the next five years and an increase of 11,900 building permits. There’s a big departure from Chapman’s prediction of 77,000 new jobs and a decrease in building permits Kenneth Leventhal & Co. / percent change Chapman University / percent change Employment (in thousands)
Leventhal Chapman 1990 1,205 1,205 1991 1,160 1,160 1992 1,130 1,132 1993 1,125 1,332 1994 1,145 1,153 1995 1,178 1,187 1996 1,218 1,207 1997 1,258 1,209
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Building permits
Leventhal Chapman 1990 11,983 11,976 1991 6,555 6,569 1992 6,100 6,084 1993 7,000 5,742 1994 9,000 6,766 1995 12,000 8,084 1996 15,000 5,557 1997 18,000 5,528
Sources: Chapman University Center for Economic Research; Kenneth Leventhal & Co. Research by DALLAS M. JACKSON / Los Angeles Times
