1995-96 REVIEW AND OUTLOOK : Industry by Industry : Outlook


There may be clouds on the nation’s economic horizon, but it should be mainly blue skies ahead for Southern California in 1996. Here is what key industries can expect:

* AEROSPACE: Yes, there’s a future again in aerospace after years of painful cuts. Several defense and commercial programs that employ thousands in California are secure for at least 1996. They include the B-2 bomber, F/A-18 fighter and C-17 transport. Satellite construction will also remain strong.


* AGRICULTURE: Barring a replay of 1995’s ferocious weather, which wrecked a number of orchards and fields, production of almonds, walnuts, grains, cotton, milk and grapes is bound to bounce back in 1996. But low inventories will tend to bolster prices, cheering farmers. The livestock industry will be trying to recover from a tough 1995, when rains produced grass and a bumper crop of beef cattle, forcing prices down. Cotton will probably fare well after being off 25% in 1995. December’s rains helped allay drought fears, but weather remains the key wild card. Another: What will happen if Congress, as expected, reduces crop subsidies?



* AUTOS: After a disappointing 1995, auto makers expect car and truck sales to be flat in 1996. One reason: Small wage hikes are causing consumers to delay purchases and to balk at hefty new-car prices. Big Three profits will be squeezed by higher rebates and model-introduction costs. A big wild card is contract talks with the United Auto Workers.


* BANKS AND S&Ls;: Although this was a record-breaking year for bank mergers, the consolidation movement could gain even more strength in 1996. The hottest action in the savings and loan industry may be in Washington, where Congress is expected to take action on sweeping bank reform legislation that should change--and perhaps eliminate--the legal lines that separate commercial banks from S&Ls.;


* COMPUTERS: Sales of Microsoft Corp.’s Windows 95 failed to live up to the hype, and there are signs that hardware sales are beginning to slow down. That doesn’t bode well for the semiconductor industry. Consolidation in the software industry will persist, with rumors that Novell Inc. and Borland International are on the selling block. Apple Computer also is the subject of takeover rumors.


* CONSUMER PRODUCTS: As new age beverages lose luster with consumers, marketers are expected to put extra muscle behind soft drinks. Root beer, anyone? Weak apparel sales in 1995 mean that prices aren’t likely to rise much in 1996. More over-the-counter versions of prescription drugs are on the way.


* DRUGS & BIOTECH: Look for more partnerships between U.S. and foreign pharmaceutical companies and cash-hungry biotechnology companies. Drug makers will intensify their research into ways to effectively treat specific diseases, such as cancer or Alzheimer’s, at the lowest-possible cost--a fast-growing field known as disease management.


* ENERGY: The outlook nationally is for slack to falling oil prices, due to a glut of supply worldwide. And low oil prices mean slim margins for producers. On the West Coast, however, the lifting of the Alaska Oil export ban will boost prices for California-produced crude anywhere from 50 cents to $2.50 a barrel when the law becomes effective in the spring. That will squeeze state refinery profit margins, though it’s unclear how much of that price boost will find its way to the gasoline pump. But it’s likely gasoline prices will rise a little--5 to 15 cents per gallon--as California Air Resources Board clean-air rules require a switch to cleaner-burning gasoline in June.



* GAMING: 1996 may be the year the gambling wave hits a breakwater. After several years of unrelenting expansion--some form of gambling is now legal in every state except Utah and Hawaii--the travails of casino gambling in New Orleans are bringing the assumption that casinos are an economic slam-dunk into question.


* HEALTH CARE: The health-care industry will continue its furious consolidation drive, as weaker companies fall by the wayside and the strongest companies merge and grow bigger. Expect more mergers among managed-health-care companies and more acquisitions by big for-profit hospital chains of financially struggling nonprofit hospitals. Doctors and hospitals will look for ways to deliver medical services directly to employers, bypassing the big insurers.


* INSURANCE: The insurance industry, which has undergone considerable consolidation in the past year, may see an even bigger merger-and-acquisition wave in 1996 as companies try to position themselves in an industry marked by overcapacity and brutal competition. California insurers will be focused on Sacramento, where Insurance Commissioner Chuck Quackenbush will be trying to implement his controversial plan to establish a statewide earthquake insurance authority.


* INTERNATIONAL TRADE: Greater China will dominate the trade picture as the Clinton administration grapples with increasing political tensions across the Taiwan Straits and jitters in nearby Hong Kong, which returns to Chinese control in 1997. Other possible hot spots are the North American Free Trade Agreement, the Kodak-Fuji spat in Japan and human rights concerns in developing countries where U.S. oil, timber and mining firms are aggressively pursuing new projects. Trade will continue to be a major engine for the California economy, where exports are forecast to reach $100 billion in 1996, up 16% over this year.


* LABOR: Organized labor, after decades of decline, is making noises about launching a genuine comeback in 1996. The charge will be led by militant John Sweeney, who captured the presidency of the AFL-CIO in October after an unprecedented insurgent campaign. He and other labor leaders will focus on the widening wage gap between the haves and the have-nots.


* INTERACTIVE MEDIA: If 1995 was the year the masses discovered the Internet, 1996 will be the year they begin to figure out what all the fuss is about. Fast modems and an even-faster service known as ISDN will become more affordable, and competition from such heavyweights as AT&T;, Pacific Bell and Microsoft in the Internet access business will drive down the costs of purchasing an e-mail address. At the same time, new technology will enable the thousands of firms pasting up billboards on the World Wide Web to design truly interactive services, incorporating audio, video and chat functions. On the multimedia front, the next-generation VCR--the video equivalent to a CD player--is expected to debut by the end of the year. The same discs are expected to be used by CD-ROM developers to pack far more video, audio and text into games and educational programs.



* MEDIA: The coming year holds good news for publishers. Paper prices, which for newspapers account for a quarter of overall costs, will peak, freeing up cash that can be invested in alternative electronic forms of distribution such as the Internet. Passage of the telecommunications reform bill could be a boon for the country, creating jobs and stimulating new investments as cable companies enter the phone business and telephone carriers branch into cable. Easing of restrictions on television station ownership should set off a merger frenzy, as the broadcast networks race to add to their station groups and the large independent operators grow or get eaten.


* MOVIES: After a year of upheaval that saw MCA change hands, unprecedented executive shuffling and independent companies struggling, Hollywood is looking for stability. Studio executives also will be looking for more big hits after a year that was relatively light in that area, with only a handful of movies grossing more than $100 million domestically and none that broke the $200-million mark.


* MUSIC: The $35-billion global music market should continue to flourish in 1996, despite recent shake-ups in the corporate boardrooms of the nation’s biggest record companies. Products due to be released in 1996 were recorded long ago by artists who are tied to long-term contracts that should keep cash registers ringing for many years to come. Things look so good that analysts predict billionaires like Sumner Redstone and Ronald Perelman, who are said to be bullish on pop, may add a music division to their portfolios next year. Big problems loom ahead, however, in the retail sector, where several giant record store chains are expected to collapse due to cut-throat price wars with discount houses and record clubs.


* REAL ESTATE & CONSTRUCTION: After more than five years of falling prices, California homeowners should actually see property values rise a bit. But don’t expect a return to the roaring appreciation of the 1980s or 1970s. Most homeowners will see modest gains at best for the foreseeable future. On the commercial front, the market will continue to improve--thanks to the slow growing state economy--and even the downtown Los Angeles office market might finally hit bottom. UCLA economists predict that California housing construction will pick up in 1996 as lower mortgage interest rates, low prices and pent-up demand finally combine to spur new sales.


* RETAILING: Retail sales nationally will increase only modestly again in 1996. But Southern California will boast fairly strong retail sales growth as the region’s economy continues to recover. Despite recent mergers and consolidation in the Southland’s supermarket industry, grocery prices will remain stable as major competitors such as Ralphs, Vons and Lucky continue to fight for market share.


* SECURITIES: The merger and underwriting businesses began to feel like old times in the second half of 1995, and brokerages are hoping that boom extends into 1996. If it does, the securities industry has a chance to finally top its 1993 earnings record of $8.6 billion--and with 5,000 fewer people on payroll than at the 1987 peak of 260,000. But the industry’s continued success also depends heavily on small investors’ willingness to continue buying stocks and stock funds.



* SMALL BUSINESS: With corporate downsizing showing no sign of slowing, more and more workers will turn to small business start-ups. Franchises are expected to increase as job creators, providing a transition for corporate exiles unused to being on their own. More adventuresome entrepreneurs will take advantage of a growing number of nonprofit agencies and bank-sponsored small business development centers that provide low-cost business counseling. Small retailers will find themselves battling 300 “big box” retailers, stores like Wal-Mart and Super Kmart, expected to open in the state within three years. Meanwhile, savvy small businesses will expand their markets nationally and internationally and find new suppliers by getting online.


* TELECOMMUNICATIONS: Whether or not Congress passes major telecom reform legislation this year, virtually every segment of the telecommunications industry will be hit with new shock waves of competition. The Baby Bells will begin to see serious local phone competition in major metropolitan areas like downtown Los Angeles and San Francisco. Investments in new personal communications systems could bring fresh competition to the wireless market, putting downward pressure on cellular phone prices. And cable companies will enter the market.


* TRANSPORTATION: California shippers will watch closely to see if they’re affected by the takeovers of two big railroads in the state. Santa Fe Pacific is now part of Burlington Northern, and Southern Pacific is being bought by Union Pacific. The airlines, meanwhile, will be under pressure to match the big profits they earned in 1995, so look for them to keep fare wars to a minimum.


* TRAVEL AND TOURISM: After growing an estimated 3% in 1995, domestic travel is expected to increase another 2% in 1996 primarily because of leisure travel. The tourism industry in Southern California is looking forward to another good year as big-spending foreign travelers continue to flock to the region. Convention bookings are up sharply in Los Angeles.


* UTILITIES: 1996 could see major changes in the industry. Look for mergers, restructurings and the separation of power-generating assets from transmission and distribution businesses. All of this is being fueled by the move to deregulate the electric power industry.


This report was compiled by Times Staff Writer Nancy Rivera Brooks.