1995-96 REVIEW AND OUTLOOK : ’96 May Be Year Southland Joins State in Recovery : Indicators: Forecasters expect California’s job growth rate to outpace the nation’s and home prices to pick up.
If the forecasters are right, 1996 will be the year California’s economic recovery comes home to Los Angeles. Literally.
With the continuing boom in international trade and entertainment, as well as new signs of life in the beleaguered real estate and aerospace industries, 1996 may be the year Southern California finally joins the rest of the state’s recovery.
Though statewide statistics show that California has been in recovery for most of the last couple of years, many residents, particularly in hard-hit Southern California, still don’t believe it.
Part of the reason has been the poor performance of the region’s real estate market, where prices have continued to fall. But economists around the state say that 1996 will see home prices finally begin to recover, after looking for a bottom all year.
“Southern California will be sharing in the upturn in 1996” for the first time since the recession began, said Lynn Reaser, chief economist at First Interstate Bank in Los Angeles. “Southern California’s growth will actually match the state average.”
Of 26 areas of Los Angeles County measured by UCLA, 14 showed price improvement in the last six months, said Nelson Pedrozo, a UCLA economist. That bodes well for 1996.
For the state as a whole, forecasters from UCLA to the major banks are remarkably consistent in their ’96 outlook: Estimates of nonfarm employment growth are hovering around 2.3% for 1996, up from an estimated 2% in 1995. The ’96 growth rate should outpace the nation’s as a whole, economists say.
The state’s unemployment rate is expected to fall from about 7.8% in 1995 to about 7.4% next year.
The state even expects a revenue surplus in fiscal 1995, the first since 1987, a sign of the continuing job creation.
“1995 was kind of a transitional year, and it looks like we’ve been gaining strength,” said Tom K. Lieser, an economist and associate director of the UCLA Business Forecasting Project.
Key factors in Southern California’s predicted renaissance:
* The entertainment industry, which has been growing faster than the once-key defense sector, should continue to flourish. Though estimates vary, the widely watched UCLA Business Forecasting Project said the movie industry will be among the fastest growing in the next three years, with jobs expanding 16.3% between 1995 and 1998.
Proposed mergers in the industry may slow 1996 job growth, but the sector promises to remain strong, particularly with growing demand from Asia and other overseas markets.
* The defense industry continues to lose jobs, but there are also some positive signs: Douglas Aircraft Co. decided to place fuselage assembly in its Long Beach plant, Saudi Arabia and ValuJet Airlines Inc. both placed new orders with Douglas for commercial jets, and the Air Force ordered 80 new C-17 military cargo jets from McDonnell Douglas Corp.
Jack Kyser, chief economist at the Economic Development Corp. of Los Angeles County, goes so far as to say: “This industry should reach a bottom in 1996.” UCLA says that job losses in the industry will amount to about 14,000 in the next three years, compared with 20,000 in 1995.
* Housing prices should pick up, leading to a resurgence in the moribund real estate and construction businesses. “The market has been very dormant, and prices have been searching for a bottom,” said David Hensley, regional economist at Salomon Bros. in New York. “If there is a pickup in [sales and construction], that would stimulate the economy there.”
UCLA forecasts 3.1% price growth in 1996, the first since 1990. Others foresee less dramatic, but nevertheless positive, price changes in 1996.
* The recovery of overseas economies and expected improvement of the troubled Mexican economy should stimulate foreign trade, already an engine of growth for the region. The effects of the North American Free Trade Agreement should be felt in 1996.
The international trade bank division of Bank of America forecast that California merchandise exports will rise 16% in 1996, to $110 billion. That follows an estimated 17.5% this year.
There are imponderables that could complicate the outlook for Southern California. Foremost among these are the consequences of several large corporate mergers now under contemplation.
First Interstate Bancorp, which employs 5,000 in Los Angeles County, is currently the target of takeover attempts by rivals First Bank System Inc. and Wells Fargo & Co. Depending on who prevails, the merger could mean the loss of hundred of overlapping jobs, or even the move of Los Angeles’ last remaining large commercial bank headquarters out of town.
Similarly, the possibility of a merger or takeover by Seattle-based Boeing Co. of St. Louis-based McDonnell Douglas calls into question the fate of thousands of McDonnell Douglas employees in Southern California.
Some observers have speculated that an outright merger could mean the closure of Douglas’ Long Beach plants or the move of thousands of jobs out of state. On the other hand, strategic alliances short of a full merger between the two aircraft giants could actually benefit Southern California if it means moving new projects here.
It’s also unclear what will happen to hundreds of employees now working at dozens of Broadway stores, which were bought last year by Federated Department Stores Inc. The Broadway stores will be converted into either Bloomingdale’s or Macy’s stores, sold to other retailers or shut down.
And hanging over all of this is the continuing effort by officials to deal with the fiscal crisis in Los Angeles County and the aftermath of the bankruptcy in Orange County.
“We could see cutbacks, or a slowdown, in government spending,” depending on whether or how much relief flows out of Washington, said First Interstate’s Reaser.
