UCLA Predictions for State Mostly Rosy

Strong growth in exports, consumer spending and services will fuel a better-than-expected 3% increase in California jobs in 1996 and in 1997, although the key real estate sector of the economy remains troubled and home prices continue to fall, the UCLA Anderson Business Forecasting Project said in a report to be released today.

In the latest quarterly economic report by the widely watched forecasting project, the good news outweighs the bad: Sales and inflation-adjusted personal income will rise at the best rates since the 1980s, exports are expected to boom, and investment capital will flood the state--all with less than 2% inflation.

Forecasters also predicted that the state’s unemployment rate, which continues to exceed the national rate, will drop to 7.3% this year, 6.5% in 1997 and 6.6% in 1998, at which time it will exceed the national rate by only 0.6 percentage point. In 1995, the rate was 7.8%.

All told, the state will create 970,000 new jobs in the three years, of which 511,000 will be in services and 241,000 in wholesale and retail trade, the forecast said.

The forecast predicts statewide nonfarm employment growth of 3% in 1996, 2.8% in 1997 and 1.8% in 1998, higher than earlier forecasts. The last time state job growth exceeded 3% was 1988, UCLA said.

And there is good news for workers. In 1995, personal incomes grew 7.2%, the highest rate since 1990. Adjusted for inflation, real incomes grew 5.7%, the strongest rate since 1984. Real incomes will continue to grow in the next three years: 4.7% in 1996, 4.4% in 1997 and 2.4% in 1998.

The leading sectors:

* Business services will grow 7.2% this year, 6% in ’97 and 2.7% in ‘98, adding a total of 148,000 jobs in the three years.

* Motion pictures and television will expand 7.8% in 1996, 7% in ’97 and 4.8% in 98.

* Professional services will grow 4.7% in ‘96, 7.6% in ’97 and 4.2% in ’98.

Other fast-growing sectors include amusements and hotel employment, the forecast said.

Even traditionally troubled industries show some signs of life: Manufacturing jobs are expected to remain stable, with job losses in aerospace tapering off so that the total losses by 1998 will be about the same as the 1995 decline of 21,000.

But the real estate industry continues to defy optimism. Housing prices should bottom out and turn up in 1996, said UCLA economist Tom K. Lieser. But this isn’t the first time UCLA has made the same prediction, he admitted.

“We continue to have the strongest housing forecast of which we are aware, and we have been too optimistic in the last several forecasts,” Lieser writes in the latest report. “However, the real variables of income and employment are the strongest they have been since the mid- to late 1980s, favoring an improvement in real estate.”

He argues that continuing low mortgage interest rates contributed to a pickup in existing home sales in January, which were up 17% over a year ago and 4.3% over the previous month. On Monday, the California Assn. of Realtors reported that February sales of existing homes were up 25% over a year ago and up 7.7% from January.

Still, in 1995, new housing permits fell short of UCLA’s last prediction. And the statewide median price for existing homes, as reported by the California Assn. of Realtors, fell 0.4% from December to January and was 1.6% below the median a year earlier.

The story was worse in Southern California: In the fourth quarter of 1995, new and existing home prices in seven southern counties were 3.5% lower than those a year earlier.

“The outlook for home prices remains an important timing factor in this housing market,” Lieser wrote. “As long as prices are soft . . . buyers will have an incentive to wait for lower prices. But it is our view that we are getting close to the bottom.”

Tom Lee, chief executive of the Newhall Land & Farming Co., said things were already looking up for his company. New-home sales at the developer’s 10 active projects in the Valencia area were up 39% over a year ago in the first quarter of this year.

“We’re very optimistic” for the rest of the year, he said. “Mortgage rates, though they’ve come up a little, are still low by historic standards. And housing prices have come down quite a bit, so . . . everything that is important to housing sales is good.”