L.A. Left Behind as State Revs Up : Recovery: Parts of California’s economy look like the rest of the country’s. Technology and agriculture are among healthy sectors.
A leap of nearly one-third in home building is not the stuff of a moribund economy. Nor are commercial vacancy rates below the national average, three straight months of improved automobile sales, brisk holiday shopping or rising employment.
“I’m happy to report, I think, that we’re on the way up,” says Jim Juarceys, executive vice president at Shea Homes’ San Jose division.
San Jose? Wait a minute. Isn’t California still stuck deep in recession?
Not everywhere. Cracks are appearing in California’s three-year slump, but most are a long way from Los Angeles. In a marked shift of economic vitality, the city that once embodied California’s growth now lags behind as other parts of the state are bouncing back.
In many communities in the Bay Area and California’s vast Central Valley, more people are working, more houses are being built and more money is being spent than a year ago.
“I think we are at a turning point in the California economy,” says economist Brian Cromwell at the Federal Reserve Bank in San Francisco, adding: “If we cut Southern California out of the picture, and L.A. in particular, we would be looking more like the nation.”
To be sure, the suggestion that the state’s economy is improving outside Southern California is apt to draw loud denials, especially in the Bay Area, where more jobs are still being lost than gained. And another wave of military base closings, starting in 1995, is expected to hurt the Bay Area.
But there is clear evidence of improvement in key sectors of California’s diverse economy, with high technology and agriculture in generally good shape. The signs are clearest in regions that never fell as far as Southern California--specifically, communities not dependent on defense-related manufacturing jobs.
“There are at least three Californias in economic terms, and there is this dramatic difference among them,” said Tapan Munroe, chief economist at Pacific Gas & Electric, the giant public utility that dominates the northern half of the state. “Significant job growth is occurring.”
California’s many contrasts have always been most dramatic between north and south, where differences in climate, history and ethnic backgrounds have translated into economies with different strengths and weaknesses.
Southern California has been hardest hit in this recession largely because of its preponderance of manufacturing jobs tied to the military-industrial complex, a 50-year growth engine that switched off at the end of the Cold War.
Though the Bay Area is also replete with high-technology enterprises tied to defense and aerospace, economists say that on balance they are more commercially oriented. And technology, especially computers, has had a fairly good year.
How far the balance of economic power in the state might shift northward remains to be seen.
“It’s really only L.A. County, the ultra-dependent part of the defense belt, that is still in the toilet,” said Joel Kotkin, a fellow at the Center for the New West. “Orange County has more in common economically with San Jose . . . .”
Meanwhile, California’s third economy--the agriculture- and government-based Central Valley--has benefited from lower costs, the end of the drought and lowered farm debt resulting from earlier agribusiness shakeouts.
Although the capital of Sacramento experienced a moderate recession, state employment there--despite California’s fiscal crisis--has actually grown by 3,000 this year to 87,200, offsetting job losses from military base closings and other cutbacks.
“The truth is, we’ve pretty much absorbed our hits,” says Robert Fountain, a business professor at Cal State Sacramento. “We had no net loss of jobs this year for the first time since 1990.”
Economists and business people stress that these scattered positive comparisons say more about how bad things used to be than how good they are now. In many cases, for example, renewed economic activity is driven by people exploiting depressed prices for housing.
The Pacific region of the Conference Board’s consumer confidence index--dominated by California--recorded a big jump in November, yet other fresh surveys of business executives and consumers indicate continued widespread gloom.
“There are stirrings out there, but I’m just not convinced,” says Ted Gibson, principal economist at the California Department of Finance. “The concern I have about the Bay Area is the base closings, and that’s 1995-97. That impact could easily approach 100,000 jobs.”
Yet signs of improvement seem clear.
“You get the sense from people in California that they’re doomed to 20 years of sheer hell,” says Tracy Clark, senior economist at the Western Blue-Chip Economic Forecast at Arizona State University. “But that just doesn’t add up.”
Most economists discount the significance of California’s sharp November drop in its volatile unemployment rate--to 8.6% from 9.8%--because it indicated that many have simply given up hunting jobs.
But outside Southern California, the decline in the number of people working has slowed and in some cases reversed itself. Most of the state’s net loss of 163,000 jobs over the last 12 months came in the five metropolitan areas of Southern California, including a drop of 75,000 in Los Angeles County alone.
The source of 40% of the state’s jobs three years ago, Los Angeles County has suffered two-thirds--or about 425,000--of California’s job losses since the decline began in July, 1990.
There are other signs of the growing dichotomy from the Construction Industry Research Board in Burbank, which says the six-county Southern California region accounted for just 40% of the state’s new housing this year versus 63% just five years ago.
Southern California’s residential construction fell by another 16% this year to a projected 34,500 units, driving the total for the state to the smallest number of new housing units for any year since World War II. Most of the decline was traceable to Los Angeles County, which alone tumbled 38%.
Meanwhile, the nine-county Bay Area slipped just 1.1% from 1992. Despite continued job losses, the number of building permits issued in San Jose for residential housing in the first 10 months of this year jumped 32%. In San Francisco, the increase was 26%.
“We’re seeing a mild upswing,” home builder Juarceys said. “I believe we’re up about 10 to 15% from last year. There appears to be some improvement in confidence on the part of the buyer.”
On the commercial real estate side, the Bay Area--including San Francisco, Oakland, Silicon Valley and Contra Costa County--posted declining vacancy rates and, at 14.5% in the third quarter, was well below the national average of 18.6%. The figure in Los Angeles was 25%, according to Cushman & Wakefield, a real estate brokerage.
A recent consulting report done for the brokerage stated that “San Francisco is in a better position than the rest of California to benefit from sharply increased business investment in the national economy. For the next year, we expect the Los Angeles economy to show little change, up or down.”
Nobody expects vigorous recovery anywhere in the state for years to come while the shrinkage of the defense sector plays itself out. And despite the differences, the same issues face all sections of California, according to economist Stephen Levy at the Center for Continuing Study of the California Economy in Palo Alto.
Foremost is the need to boost exports, from Hollywood and the apparel industry in Southern California, technology in the Bay Area, to agriculture in the Central Valley, Levy said.
That, he noted, makes the hemispherical, Pacific Rim and global trade initiatives of the past two months especially welcome.
“Those are events that are right on course with where we have to go,” he said.
California Job Losses
While nearly all of California’s major metropolitan areas have sustained job losses since 1990, Los Angeles and the surrounding area have clearly been hit much harder than the rest of the state. Between July, 1990 and October 1993, metropolitan Los Angeles lost more than 425,00 jobs, or 10% of its employment base.
Job losses from July, 1990, to Oct., 1993, in thousands: *
Orange County: 74.5 Los Angeles: 427 Oakland: 32.9 Oxnard: 8.81 Riverside: 9.27 Sacramento: 0.97 San Diego: 40.6 San Francisco: 45.6 San Jose: 49.3 Santa Rose: 2.29 Stockton: 0.82 Vallejo: 0.09 Source: Federal Reserve Bank, San Francisco
