A tough year lies ahead, but the economy will rally again in 1992.

A tough year lies ahead, but the economy will rally again in 1992

The bad news is that 1991 will be a weak year for Angeleno commerce. But the good news is that by 1992 the economy will rebound smartly, if the usual gaggle of forecasters, economists and business gurus are on the mark.

Locally, aerospace, real estate and retailing face a bleak 1991, but other sectors should be able to stiff-arm the downturn.

And if the Federal Reserve Board, which governs the nation's money supply, loosens up the spigots a bit, business could revive earlier rather than later.

"The only reason we are having a recession is that we have had such a tight monetary policy," said Michael Bazdarich, president of MB Economics in La Crescenta. "The recession will end quickly once the Fed policy is turned around."

Little noticed, the Federal Reserve in 1990 crimped money growth to a virtual halt -- a key measure of the nation's money supply, M3, grew by about 1 percent for the year -- thus slamming the lid on economic expansion, said Bazdarich.

Despite the Fed's restrictiveness, bank forecasters at First Interstate Bank and Wells Fargo predict employment should grow in California by more than 1 percent in 1991 -- not terrific, but hardly the picture of a grievous recession. Security Pacific predicts the state economy will grow by 0.2 percent this year.

Even the perennially cautious UCLA Business Forecasting Project predicts only a 0.5 percent decline in state economic activity in 1991, followed by a robust 4.9 percent expansion in 1992 -- again, not a soup-lines scenario.

However, the Southland economy faces a tougher year than the rest of the state, with soft retail sales, limp tourism, slumping real estate, weakening demand for services and a shrinking aerospace industry.

Employment growth in Los Angeles County will slow to 0.6 percent in 1991, compared to 1.5 percent expansion in 1990, and 3.0 percent in 1989, according to economist Philip Vincent of Los Angeles-based First Interstate Bank.

There are about 4.4 million on payrolls in Los Angeles County, the nation's most populous county with more than 8.8 million people.

"It depends on one's point of view whether that (0.6 percent employment growth in 1991) is a recession or not, but it is quite a downturn from what has happened before," said Vincent.

The "R" word -- recession -- does not yet officially apply to Los Angeles; to attain that dubious distinction, an economy must reflect two consecutive quarters of contraction, if the standards of the National Bureau of Economic Research, considered the arbiter in such matters, are applied.

But key Southland industries -- particularly aerospace, real estate, and retailing -- are already in the doldrums, having posted more than two bad quarters in a row, even as 1991 rolls in.

For example, in the first 11 months of 1990, construction lending in Los Angeles County was off by 41.0 percent from the like period in 1989, according to Los Angeles-based Dataquick Information Services Inc.

And in the first nine months of 1990, housing construction permits issued for Los Angeles County fell 41.5 percent from 1989, according to the Burbank-based Construction Industry Research Board.

Total non-residential construction in Los Angeles County was off 7.6 percent in the first nine months of 1990 from the same 1989 period, according to CIRB.

The real estate malaise will continue, said forecasters. For 1991, First Interstate predicts total housing starts in the county will fall another 3.9 percent, while single-family housing starts will tumble by 12.2 percent.

New single-family housing construction will be especially hard hit, as consumers pull in horns before making such large financial commitments -- and lenders are underlining the word "commitment" for buyers, by applying more stringent underwriting standards.

Accordingly, house prices have been drifting down. Official statistics point to a 5 percent drop in house prices from a year ago, and UCLA predicts that home prices will continue to drift down another 10 percent, adjusted for inflation, in 1991.

Bank economist Robert Skinkle of Wells Fargo said that the extreme Southern California housing price appreciation of 1988 and 1989 -- when house prices often rose by 2 percent a month -- will be corrected in the next two years.

"We have a couple quarters ahead of response to the market of 1988 and 1989, when house prices rose so dramatically," said Skinkle. "There will be a bit of a correction."

However, Skinkle agreed with economist Bazdarich that an easing of monetary policy by the Federal Reserve could resuscitate matters more quickly: "If mortgage rates go down and homes become more affordable, that could revive sales."

But some sales -- for example, retail -- may not revive next year even with Federal Reserve stimulus, said economists. Retail sales, which already acted the Grinch this Christmas, will fall by 0.5 percent in Los Angeles County in real terms in 1991, according to economist Vincent of First Interstate. "We are looking for a decrease in real retail sales in Los Angeles County in 1991. People have slowed their consumption (retail buying) tremendously, and will continue that pattern into 1991's first half."

UCLA predicts state retail sales will sag by 4.0 percent in real terms in 1991.

If Angeleno shoppers feel weak-kneed at the checkout stands in 1991, part of the reason may be softness in the local manufacturing sector.

Though Los Angeles is Hollywood to much of the nation, in truth the Southland is a major manufacturing capital, with about 20.4 percent of the county workforce -- 876,800 -- working on production lines. Said economist Vincent, "The single most important force driving the Los Angeles area metropolitan economy continues to be manufacturing." Most economists reckon that each job on a production line generates another two to three jobs in collateral activities, such as trucking, warehousing, advertising and administration. (By comparison, only about 2 percent of the county workforce is employed in Tinseltown.)

Aerospace is the biggest manufacturing sector, with roughly 250,000 employed making planes, missiles and other airworthy equipment.

And aerospace manufacturers are lopping off payrolls, with about 20,000 workers having lost their jobs in 1990, and more expected for 1991. "The decline in real defense contracts in the state and the nation since 1988 has begun to take its toll on this sector," said Vincent.

Other big local manufacturing industries, such as furniture and apparel, face a flat 1991, with furniture makers complaining of clean-air regulations and workers' compensation costs.

One of Los Angeles' long-term problems is that people no longer move here from the rest of the country as they once did. In fact, some economists figure that as many people now leave Los Angeles County each year as enter it, and that the only population growth will come from the surfeit of births over deaths.

"The Inland Empire -- Riverside and San Bernardino counties -- is gaining 170 people each and every day from Los Angeles County," said Wells Fargo economist Skinkle.

According to the UCLA forecast, Los Angeles County in 1991 will experience no net population growth from migration.

Said Vincent, "Los Angeles County, like San Francisco, is becoming a mature area. The percentages are going to start showing much slower growth for Los Angeles County."

If there is some good news in 1991, said economist Jack Kyser of the Los Angeles Area Chamber of Commerce, it is that local governments are beginning to understand the need to attract businesses to the Southland and to try some old-fashioned economic development.

"People are getting the idea that we need to do some serious economic development," said Kyser. "Until now we have been taking a lot for granted, but now the economy is going to get sot enough to hurt."

PHOTO : The floor of the Pacific Stock Exchange: One economist claims the current recession is the result of the Fed's tight money policy

PHOTO : Searching for pockets of prosperity: Traders at the Pacific Stock Exchange

PHOTO : Northrop Corp.'s B-2 `Stealth' Bombers: Aerospace, the largest segment of L.A. County manufacturing, is facing another bleak year after laying off 20,000 workers in 1990