State Economy in Recovery, UCLA Finds
After California’s dispiriting slide into the depths of recession, a long-awaited recovery has finally begun, according to a UCLA analysis to be released today.
The report of a slow recovery is the first by a prominent forecasting group that the state’s deepest slump in six decades has ended and a fragile expansion is in progress.
Moreover, the analysis may signal a broader shift in perceptions about California’s economy in light of surprising recent data on jobs and housing.
In a revision to be made public Friday, the state Employment Development Department now estimates that California added payroll jobs in January and February--the first consecutive two-month gain since mid-1990. Similarly, California shared in a national jump in consumer confidence in March, it was reported Tuesday, although the state level remains lower than the nation’s.
“By the time you read this, California will be in recovery!” exclaimed economists Larry J. Kimbell and Tom K. Lieser in the new UCLA report, which cites earthquake rebuilding aid as a short-term catalyst.
There are limits to the enthusiasm, however: Job gains are expected to be frustratingly slow and uneven in the emerging recovery, and the aerospace squeeze will continue. Thousands more high-paying defense jobs will vanish in the next few years, often replaced by less lucrative jobs in service industries.
Yet even a lukewarm upturn would be a striking shift from the four-year barrage of bleak economic news, a traumatic period in which the state lost between 600,000 and 800,000 jobs. For the first time since 1990, the UCLA analysis says, Californians have reason to anticipate an increase in jobs, incomes, retail sales and construction.
To make their case, economists at the UCLA Business Forecasting Project selected from a growing if tentative array of evidence:
* Payroll jobs rose 15,900 in February and 7,300 in January--a month in which officials earlier had counted a decline, according to state Employment Development Department estimates.
* Business failures in January, as gauged by Dun & Bradstreet, fell 23.3% in California compared to a year ago.
* Sales of existing homes have been running about 20% higher than year-ago levels, a rally that could boost purchases of everything from curtains to carpets to kitchen cabinets.
“We’ve changed our thinking,” said Adrian Sanchez, a regional economist at Los Angeles-based First Interstate Bancorp, which is revising its forecast in light of the improved economic news. “California is clearly close to a recovery.”
The public mood is improving, albeit from very low levels, according to a survey released Tuesday by the privately funded Conference Board. The report found that consumer confidence in the Pacific region, largely reflecting California, jumped a healthy 6.8 points on the board’s index, the same increase registered nationally.
Until now, economists have generally viewed the California economy as having hit bottom, almost like a sunken ship creeping along the ocean floor but too weak to climb back up.
A recovery, while a somewhat inexact term for a state economy, suggests steady lift in a range of economic gauges, particularly jobs. Some economists, such as the UCLA forecasters, had expected a slow ascent to begin in the second half of the year; other analysts had not anticipated a revival before year’s end or 1995.
Indeed, not everyone is persuaded that a bona fide upturn is in progress.
“I’m not going to drink a bottle of Dom Perignon just yet,” said Joseph A. Wahed, chief economist at Wells Fargo Bank in San Francisco. “Companies are still laying off people and going out of business. This is not a recovery in the real sense of the world.”
Key evidence will become available Friday, when March job totals are reported, showing whether the gains of January and February have been sustained.
Economists also are monitoring the recent sharp rise in interest rates. Low rates have boosted the state and national economies by making houses, autos, factory equipment and other items cheaper to buy on credit.
According to the UCLA forecast, the fledgling upturn will become more apparent in the coming months as personal income--a broad measure that reflects re-employment, added working hours and more--grows in the 5% range, a pace it may maintain for the next few years.
Retail sales also are expected to improve this year. The state’s jobless rate, which has been hovering in the 9% to 10% range, should decline gradually to 7.6% by 1996, the UCLA researchers estimate, with more than nine out of 10 new jobs in construction, trade and services.
A sharp rise in home building also will help the economy, analysts said. The state’s battered home building industry appears to have hit bottom last June, when new homes were started at an annual rate of about 80,000. By December and January, the pace had edged up to 90,000--still a far cry from the booming rate of a quarter-million in the late 1980s.
“The anecdotal evidence we’re getting from the builders suggests there’s quite a bit in the pipeline,” said Ted Gibson, principal economist at the state Department of Finance.
Such areas as tourism, recreation and international trade will be among the sources of rising employment, the UCLA report said.
California’s jobless rate is expected to exceed the nation’s through the late 1990s, however. In the next couple of years, more unemployed people will leave the state, drop out of the labor force and settle for jobs that pay less than their previous ones, the UCLA economists said.
In the short run, the Jan. 17 earthquake may help revive the regional economy, adding 20,000 jobs in the next year, according to the UCLA analysis. It might also accelerate a drop in the unemployment rate, partly through new jobs and partly through the more painful measure of people moving away.
Longer term, the study said, the quake’s effect on Southern California’s economy will be very small but negative, as some businesses choose to stay out of the region, cutting job growth by about 30,000.
The analysis is not the first time that UCLA’s forecasters have stood apart from the pack. A series of gloomy forecasts during the recession by Kimbell’s predecessor, David Hensley, upset many in the state’s business Establishment, although the dramatic forecasts proved on target.
California Unemployment Rate
California’s unemployment rate has risen steadily from the 5% range before the recession began in mid-1990 to levels of more than 9%. February ‘94: 9.0% NOTE: The 1994 monthly figures are not technically comparable to earlier months, because of changes in methodology.
Source: U.S. Department of Labor, Bureau of Statistics; Current Population Survey
