For Western States, a New Confidence

By JAMES FLANIGAN

Sept. 23, 1998 12 AM PT

One after the other, economists from 11 Western states said the Asia crisis will slow the economies of their states for the next one to two years.

Arizona’s exports are down 20% because of Asia, economist Timothy Hogan of Arizona State University told the annual conference of the Center for the New West in Denver.

“A decline in exports to Asia is slowing Colorado’s job growth,” said Nancy McCallin, chief economist of the Colorado Legislative Council.

Oregon is being hurt by cancellations of semiconductor projects and a decline in Japanese investment, said economist Paul Warner of Oregon’s state government.

Yet the economists were more chastened than downcast by their states’ prospects. In all the states, the outlook is for slower growth, not for recession. Slowdowns will be temporary, but underlying trends will remain positive, the economists said.

That confidence points up how much the West has changed in this decade. And that says a lot about the region’s prospects as it enters the new century.

California’s Howard Roth, economist of Bank of America, was relatively optimistic. The state is suffering a huge decline in exports to Asia, Roth said, but the numbers aren’t as bad as they could be because the North American Free Trade Agreement caused exports to Mexico and Canada to increase. How bad could it get? Job growth could fall to near 2%, depending on the Mexican economy, Roth said.

For most Western states, the outlook is one of good times fading. Utah, Washington, Oregon, Colorado, Idaho and others grew strongly through the 1990s, even when California, the region’s largest state, was in recession.

And new industries still buoy the West. Washington, home to Microsoft as well as to traditional mainstay Boeing, has become a technological powerhouse on its own.

Most of the other Western states, though sparsely populated with fewer than 5 million people (fewer than 1 million in several states), have nonetheless developed global economies and national ambitions.

The states of the Intermountain West, as Utah’s Republican Gov. Mike Leavitt calls Utah, Colorado, Nevada, Idaho, Wyoming and Montana, now propose to hold a presidential primary in March to compete for national attention with the South’s Super Tuesday. “A unified primary would give the West more influence in national politics,” Leavitt says.

Those ambitions may be moderated but won’t be extinguished by the slowdown. One reason is that the Western states now see the world as their market. Idaho, for example, sells farm equipment to Vietnam and has benefited from the global popularity of the French fry.

“The state’s entrepreneurs can be affected by the coming of the euro currency and new members for the European common market,” as well as by Asia and Latin America, said economist Paul Zelus of Idaho State University in Pocatello.

The West’s industries are diverse, thanks in part to interstate expansion of California-based companies. Oregon, Arizona and New Mexico have become centers for semiconductor manufacturing owing to direct investment by firms such as Intel and Hewlett-Packard. Boulder, Colo., is a growing outpost of Silicon Valley, offering lower priced office and lab space for divisions of Sun Microsystems and others.

The diversity is an asset in changing times. In Washington, Boeing’s outlook is clouded because of Asia, says economist Paul Sommers of the University of Washington, but the state’s “2,500 software firms [including Microsoft] are buoyant on the global outlook for their products.”

Biotechnology development is spreading, just as the computer electronics industry did. There are now 100 to 300 biotech companies each in Washington, Utah, Colorado and Arizona, complementing California’s more than 2,000 biotech firms. That is a considerable help for the universities of each state as well as for the economies. No other region of the country, or the world, has such cross-fertilization in advanced industry.

The Western states are better off than they used to be. A decade ago, many were still suffering from the depression in oil and other natural resource industries and from the collapse of prices for commercial and residential real estate that had burgeoned during the oil boom.

“We shouldn’t forget the downturn, which was brutal and long,” Kelly Matthews, chief economist of Salt Lake City’s First Security banking company, reminded the New West conference. Asia’s economies may well be going through the same deep contraction, “and that will affect all of our economies,” Matthews said.

Not all states enjoy a diversity of industry. Wyoming remains dependent on coal and other resources, and its economy is hurting as commodity prices decline worldwide.

“The state needs to reform its tax structure and attract different kinds of industry,” economist Shelby Gerking of the University of Wyoming told the conference. “Young people are leaving the state,” Gerking added.

How bad will the downturn be? “The Asia crisis is a short-run problem--one to two years in duration,” Roth said. “And even if it takes three years for Asia to recover, this state and region will still possess a Pacific Rim advantage.”

Perspective has changed. In the recession of the early ‘90s, California feared losing industries and people to neighboring states. There is still an outflow--about 390,000 people a year leave California for other Western states, says Philip Burgess, the Center for the New West’s president. But it is seen as cross-fertilization. “Every great empire has colonies,” quips Burgess.

Facing a downturn, the West is better prepared--and therefore confident.

James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Job Growth in the West

Job growth is expected to taper off in these Western states.

CALIFORNIA

2000: 1.7%

ARIZONA

2000: 3.0%

COLORADO

2000: 2.3%

OREGON