Tremors Through the Economy : NEWS ANALYSIS : Prompt Response Can Limit Setback to Area

The 6.6-magnitude earthquake that struck Monday dealt a major blow to the economy of Los Angeles and Southern California, which was just showing signs of recovering from a deep slump and a succession of earlier setbacks.

Economists said, however, that other, less tangible factors could prevent the quake from becoming an economic disaster. A key question will be how the region, its people and its leaders are perceived in the national and international media in the days ahead.

Despite the loss of life and widespread destruction, some economists were sticking to their forecasts that the region’s economy will recover early next year.

The economic negatives from the quake were plain to see Monday for local economists and business people. A stall in recovering house prices and home sales, a setback for tourism and higher costs for shipping goods and moving people will hurt Los Angeles and Southern California over the next year.

Offsetting some of that economic devastation, however, will be an inflow of federal and state funds to pay for reconstructing highways and buildings, particularly the Golden State and Santa Monica freeways, as well as private spending to repair damage.

Moreover, there were initial signs of resiliency and even optimism in the area’s business community. Several business people noted the courteous behavior of drivers in a city without traffic lights, and the appearances of Mayor Richard Riordan--in a Los Angeles Lakers sweat shirt--as setting the proper tone for a city and an area working to cope with adversity.

“The ability of Riordan and the City Council to demonstrate commitment to substantive development, not just public relations, will be critical to businesses contemplating investment and to convention and visitors’ groups,” said Goetz Wolff, a visiting economist at UCLA’s School of Urban Planning.

Money and jobs are riding on image. Most of the area’s major hotel and tourist destinations apparently escaped serious damage, but many officials were apprehensive about the quake’s long-term impact on the tourism industry, which employs 400,000 people in Los Angeles alone and generates about $20 billion a year from direct and indirect visitor spending.

Mike Collins, senior vice president of the Los Angeles Convention & Visitors Bureau, worried that television viewers around the world might think that all of Los Angeles was destroyed, from the pictures of collapsed freeways and blazing buildings. “It’s just one more reason for people not to come this way,” said Cheryl L. Phelps, regional manager for Hyatt Hotels in Southern California.

But other analysts were reassured by the example of San Francisco’s tourist business, which has come back strong after being hurt by the 1989 Loma Prieta earthquake, nationwide recession and the 1991 Persian Gulf War.

Recently, it has been Southern California’s turn to suffer serial setbacks, from the lengthy recession to the 1992 Los Angeles riots to last fall’s raging brush fires--and now, the earthquake.

It all makes 1994 a critical year for the area, said Lynn Reaser, chief economist of First Interstate Bancorp. “If we were to have another serious earthquake this year, that would affect business investment plans and people’s decisions to live here,” she said.

As it is, the quake’s main effect will be to push back the budding economic recovery, Reaser said. The quake came just a few weeks after the San Fernando Valley Assn. of Realtors reported strong sales gains, and brokers across Southern California declared that the housing market was finally on an upswing.

Now, that recovery will be delayed further, though probably not for very long. If the 1971 Sylmar quake and 1989 Loma Prieta quake can serve as a guide, analysts said, home sales and prices in the hardest hit areas should return to normal within three to six months, as buyers regain confidence. “An earthquake like this doesn’t permanently effect an area’s housing market, because the damage can be repaired. It’s not nearly as devastating as the closing of an aerospace plant,” said John Karevoll, of the real estate research firm Dataquick Information Systems.

The economy will pay a price, in delays and higher shipping costs, for the devastation of major highways. With Interstate 5, California’s most important north-south artery, out of action, trucks and cars will be rerouted to U.S. 101 or through the desert to the Tehachapi Mountains, said economist Jack Kyser of Los Angeles’ Economic Development Corp.

Businesses in the San Fernando Valley will bear a greater burden. And in greater Los Angeles, business contacts will be disrupted as some sections of major freeways will be closed for 12 to 18 months. Detours will be massive and public transit will become imperative--maybe even attractive.

But there’s also no doubt that urgent rebuilding of those important roads will generate hundreds of millions of dollars in new business. The cost of repairing parts of just two freeways--the intersection of I-5 and the Antelope Valley Freeway in northern Los Angeles County, and a stretch of the Santa Monica Freeway at the eastern end of Culver City --could run to $100 million, said Tony Grosso of Associated General Contractors.

“I wouldn’t be surprised if rebuilding all those shopping centers, apartments and freeways doesn’t wind up costing half a billion dollars,” he added.

One caution was how quickly work will begin. Due to local political bickering, repairs to a big stretch of Oakland’s Nimitz Freeway have not begun more than four years after the Loma Prieta quake.

But that’s just the point. If local authorities in Los Angeles apply themselves to the task, Caltrans, the state agency in charge of road-building, could begin work in a matter of days, or as soon as rubble is cleared and money flows from Washington and Sacramento.

Timing is important. The effect of work beginning promptly would be to provide a psychological as well as an economic boost to the region.

Staff writers Jesus Sanchez and David W. Myers in Los Angeles, and Michael Flagg in Orange County contributed to this story.