Software, Hard Hats Will Boost State, Analysts Predict
Economists are forecasting that despite a probable slowdown nationally, two booming industries will give California a big lift in 1999--creating tens of thousands of jobs, blunting the ongoing effects from Asia and keeping the state’s expansion well ahead of the rest of the nation.
Analysts say these two robust, well-paying industries--construction and computer software and services--could be the difference between California having a so-so year or a decidedly good year.
“We are looking at construction and computer services to offset” some of the global economic shocks next year, said Ted Gibson, chief economist at California’s Department of Finance.
Just how much of an offset they will be, of course, is the $64 question. With manufacturing payrolls expected to shrink this year and growth in most other major industries slowing, forecasters see California’s overall nonfarm employment expanding by about 2% next year, down from a robust 3% gain in 1998 and 1997.
Construction firms in the state directly employ about 600,000 people, and thousands more office and hard-hat jobs are tied closely to that industry. And nearly a quarter of a million Californians work in software development and data processing, accounting for one-fifth of the nation’s workers in this largely hidden field.
This year, gains in construction and computer services were more than enough to make up for sharply declining payrolls in high-tech manufacturing, which was hurt by lower demand from Asia and somewhat slower growth in the motion picture industry.
A similar scenario is possible for 1999. Construction payrolls will depend largely on how much new housing is built. And in computer services, the question is: How will the industry be affected if the U.S. economy slows and the fateful 2000 approaches?
“I think there is going to be very heavy growth in the first half of the year,” said Bill Manassero of the Software Council of Southern California, who sees a flurry of business from those preparing their computers for 2000.
But Manassero is less confident about the second half, which could see a slowdown nationally and stock market nervousness about the year 2000 computer problem.
California in an Earlier Stage of the Cycle
Over the last two years, construction has sparked California’s economic growth. The reason is that the state’s real estate market--particularly residential--is in an earlier stage of a cycle than most of the rest of the country.
In each of the last two years, California’s construction employment has risen by about 50,000. But that grossly understates the full effects of the state’s resurging housing market.
In fact, economists at West Chester, Pa.-based Regional Financial Associates estimate that 36% of all new nonfarm jobs created this year in California were tied to real estate. That’s a total of about 150,000 jobs produced directly and indirectly by construction--jobs at brokerage firms, mortgage lenders, lumber and stone manufacturers, building material retailers, and engineering and architectural firms.
Even though home sales and price gains have slowed somewhat recently, the prospect of even lower interest rates and continued job and population growth bode well for California’s housing market.
“Business is still good,” said Yung Kao, an Alhambra architect and president of a California group that represents Chinese American contractors, brokers, interior designers and other professionals in real estate.
Among economists, the consensus is that developers will pull permits for 150,000 new single-family and apartment units next year, compared with about 125,000 this year and 111,000 in 1997.
That difference is meaningful: Economist G.U. Krueger of the California Assn. of Realtors calculates that an increase of 25,000 units a year would result in 103,000 new jobs. But if new housing permits should surge to as high as 170,000--as Regional Financial Associates is forecasting--that would add a total of 173,000 new net jobs. “If we err on the high side of new-home construction,” said Krueger, “1999 could be as great as ’98.”
However, Krueger and most other economists or builders don’t see that happening. Though there is plenty of demand--the net in-migration of people to the state is expected to reach 335,000 next year, according to UCLA forecasts--there are too many political, financial and land constraints on development.
Very Little Tracking of Software Industry
Unlike real estate and the array of statistics that track its movement, the computer software and services industry is hardly measured at all.
But payroll records kept by the state finance department show that there are 15,000 California firms in computer software and services, including those involved in the Internet and multimedia. The typical firm employs 16, and their average pay is exceptional, more than $65,000.
The importance to California can be seen by what happened between the second and third quarters this year. During that period, computer software firms added 4,400 workers--the exact number of jobs lost in the high-tech manufacturing sector, where workers earn, on average, $20,000 less.
Software sales abroad also are mitigating the declines in California’s exports of computers and other electronic goods and machinery. Unlike merchandise exports, the government doesn’t track overseas sales of computer software and services, but they are sizable.
Elizabeth Rather, president of Forth Inc., a software maker in Manhattan Beach, said work overseas accounted for half of her firm’s sales in 1998. Her 25-year-old firm specializes in providing software for embedded chips that are used in autos and other products.
Rather has hired only a few people in the last couple of years. She often calls on independent contractors--workers who are not tallied by any government agency.
Experts say California’s entrepreneurial economy means there are many such self-employed who work from home computers, doing consulting and developing Web pages for the Internet. The state’s disproportionate share of self-employed workers suggests that overall employment is higher than statistics show.
Most economists and industry experts expect the computer software and services industry to maintain or outdo its past job growth rates of 10% or better. But there is concern that corporate America’s recent cutbacks in capital spending could take a bite out of software sales as well.
Ross DeVol, an economist at Milken Institute in Santa Monica, said that in past decades, growth in software and data-processing services seemed to be unaffected by business cycles. But he said more recent data suggest that might be changing.
Even so, DeVol and others see software and services growing briskly for now. And that bodes well for California’s economy.
Ken Moss, chief executive of Moss Micro Inc., an Irvine maker of software that helps companies automate their sales forces, said there’s one compelling reason businesses will continue to buy systems such as his. They have to, he said, in order to stay competitive.
Moss said his business is on the verge of turning a profit. He employs almost 100, triple the number a year ago. And he now has about 35 openings posted on the company’s Web site.
* HOUSING MARKET GAINS: Sales of existing homes in the state are up 11%, study says. C1
* IN PRAISE OF SOUTHLAND: Jim Flanigan sees new recognition of region’s dynamism. C1
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California Boomers
More than any other major industries, computer software and construction have led California’s robust expansion of the last two years. Employment growth in the two industries compared with statewide job totals:
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Computer software/ service jobs in % thousands change 1996 198.7 -- 1997 218.1 +15% 1998 241.8 +11%
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Construction jobs in % thousands change 1996 506 -- 1997 552 +9% 1998 598 +8%
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Total nonfarm jobs in % thousands change 1996 12,742 -- 1997 13,164 +3.3% 1998 13,590 +3.2%
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Sources: Department of Finance, Employment Development Department, UCLA-Anderson Forecast
