Southern California economy is beginning to gain strength, forecast says

Southern California’s economy is beginning to gain strength, although local residents may not feel the benefits for many months, according to a forecast to be released Wednesday.

Regional employers will be slow to rehire. The housing and construction industries are struggling, and tight credit is crimping consumer and business spending.

But tourism is gaining, the entertainment industry is thriving, and international trade projections have jumped since February, the report from the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp. says.

Nationally, as in the Southland, the recession did so much harm that the recovery has some distance to travel before the damage is repaired, the report says. But unlike some more pessimistic prognosticators who fear the U.S. could slip back into recession, the report’s authors believe the recovery “will proceed upwards and not relapse, though activity may grow in fits and starts.”


“It’s real. That doesn’t mean it’s going to be steady, but it probably won’t reverse,” said Nancy Sidhu, chief economist for the Economic Development Corp.

Her colleague, consulting economist Jack Kyser, put it another way: “The patient was extremely sick and in intensive care, but he’s stabilized and in a very slow and challenging recovery.”

In Southern California, the three strongest parts of the recovery will come in tourism and travel; motion picture and television production; and international trade. They received the only B grades among 11 employment sectors that included commercial and military-related aerospace; healthcare services; and apparel design and manufacturing.

Even in those strongest sectors, however, job growth is expected to be mostly flat compared with 2009 or still on the decline in 2010, with modest gains coming in 2011. Nonfarm employment in the five Southern California counties, for example, will fall from 6.6 million last year to 6.5 million in 2010, or a 1.2% decline, before rising to 6.6 million again in 2011, the report said.


The Labor Department said Tuesday that California in June continued to post the nation’s third-highest unemployment rate at 12.3%, behind Nevada’s 14.2% jobless rate and Michigan’s 13.2%. Employers cut overall jobs in 27 states in June, with California and New York recording the biggest decreases, the government said.

International trade activity is now expected to rise 14% in Southern California this year, having been revised upward twice by economists from just 5% growth in February. But this sector, which employs about 400,000 in the five Southern California counties, isn’t expected to see overall job gains until 2011.

Technology employment, centered mainly in Los Angeles and Orange counties, is expected to show a similarly weak pattern. After employing 223,800 workers in 2008, that sector fell to fewer than 207,000 in 2009 and will fall by an additional 1,200 jobs in 2011.

Tourism-related businesses aren’t expected to add jobs until 2011, and then only modestly. Employment in that sector will rise from about 87,400 jobs in Los Angeles, Orange, Riverside, San Bernardino and Ventura counties this year to 89,100.

Part of the reason for the tepid jobs outlook is employer caution.

“The first people they will hire are the former employees that they let go during the recession,” Sidhu said. “The next group will be temporary employees. That will continue until businesses begin to believe what we are telling them, that this recovery is real.”

Another reason is that the credit crunch continues to have a daunting effect on both consumers and businesses.

“A growing economy needs plenty of borrowing capability,” Sidhu said. “If you want to buy a new home, you need a mortgage. If a business wants to expand their factory, they need to be able to borrow to do it. If the economy is really going to get going, we need to be done with the credit crunch.”


Don’t expect any improvement in manufacturing or the housing sector, where it is unclear where the bottom of the market might be, researchers said. Also of concern were the constraints of the seriously unbalanced state budget, which was expected to limit the amount of spending local governments could do.

But there were some strong signs for the future. Some businesses, Sidhu said, were buying computer equipment.

“This is new since February. We are seeing purchases of high-tech equipment. Not just new personal computers, but some of the more sophisticated servers. Some businesses are working very hard to develop their Internet sites and online capabilities,” Sidhu said.

Kyser said California had scored some recent successes in attracting new business and employment opportunities.

“We’re seeing some business move here,” he said. " Dendreon is a biotech firm out of Seattle putting a facility in Orange County. You have several retailers looking to get into the Southern California market and taking advantage of the glut of vacant retail space.

“Some of the major banks are expanding their presence in this market, like Chase and U.S. Bancorp.,” Kyser added. “People sense that there is still opportunity in Southern California.”