A year of hits and misses sets stage for new challenges in the coming months.

A year of hits and misses sets stage for new challenges in the coming
months.

Industry        Highlights

ADVERTISING     Industry began to emerge from a two-year downturn with
                gains of about 5 percent nationally. Categories like
                automotive, telecommunications and financial services
                led to local gains. Industry shakeout of past few years
                tapered in steadier climate, with fewer agencies being
                swallowed by larger competitors or going under.
BANKING         Low interest rates in first half of the year generated
                business for both conventional lenders and mortgage
                specialists. Korean banks were in the midst of a
                bidding war for L.A.-based Pacific Union Bank. Federal
                Reserve sees no sign of deflation despite interest
                rates at a 45-year low.
DEFENSE         Smooth transition in leadership as Ronald Sugar
                replaced Kent Kresa as chairman and chief executive of
                Northrop Grumman Corp. The defense giant, teamed with
                Raytheon Co., scored an upset against Lockheed Martin
                Corp. and Boeing Co. on a missile defense contract
                valued at potentially more than $10 billion.
ENERGY          Southern California Edison was restored to fiscal
                health and won a court ruling allowing it to keep $3.6
                billion collected from customers to recoup losses
                during the energy crisis. Businesses got rate relief as
                the California Public Utilities Commission approved an
                Edison rate cut of nearly 20 percent.
FILM            Year-end release of the third "Lord of the Rings" film
                will likely push a record 25 movies over the $100
                million box office mark. Walt Disney's film unit has
                had a particularly good year with "Pirates of the
                Caribbean" and "Finding Nemo." General Electric's NBC
                unit won auction for Vivendi Universal's entertainment
                business.
HEALTH CARE     Gov. Gray Davis signed SB 2 requiring employer-provided
                health coverage. Government came through with a $250
                million for county health department. WellPoint Health
                Networks and Anthem Inc. announced merger creating
                nation's largest health insurer, California Nurses
                Association and Service Employees International Union
                bury the hatchet after years of squabbling.
HOUSING         Hot market continued unabated as median home price
                increased to $346,000 in November--a 26 percent over
                2002 median price. Entry-level markets East Los
                Angeles, Inglewood and El Monte saw 30 percent-plus
                gains. Mortgage rates neared 5 percent mid-year and
                triggering record-setting refinancing boom. The
                county's single-family home permits were up 18 percent
                through first three quarters.
LAW             L.A. Superior Court avoided more layoffs despite
                looming budget crisis. Federal prosecutors obtained
                several public corruption indictments. Profits at some
                local firms broke the $1 million mark.
REAL ESTATE     Low interest rates spurred chum in investment market.
(commercial)    Downtown trophy properties Arco Plaza, One California
                Plaza and 801 Figueroa all traded. County's office
                market on pace to absorb 2 million square feet.
                Electronic Arts and Warner Bros. Industrial vacancy
                remained at a miniscule 3 percent. Maguire Properties
                Inc. went public.
RETAIL          Local retailers benefited as "California casual" caught
                on nationally and internationally. Small non-union
                grocers like Trader Joe's gained from supermarket job
                actions. Federal tax rebates and mortgage refinancing
                boosted spending.
TECHNOLOGY      Yahoo acquired Overture Services for $1.6 billion in
                cash and stock. Local semiconductor industry saw
                increase in orders. Videogame industry continued
                expansion. Venture capital investment began to climb
                but remained weak.
TELEVISION      Broadcast networks pulled in a record $9.3 billion in
                upfront ad dollars for the 2003-04 season. CBS bumped
                off NBC as top prime time network. The World Series
                finally made baseball a boon Fox. Cable ratings up 10
                percent in coveted 12-34 age demographic.
TOURISM         Prices or existing properties were bid up nearly 20
                percent by cash-rich investment groups. Business travel
                started picking up in May.
TRADE           Dockworkers ratifed a six-year contract with steamship
                lines. Container traffic at the Port of Los Angeles
                increased by 19 percent during 2003. The smaller Port
                of Long Beach broke even despite losing its largest
                operator, Maersk Sealand, the year before.

Industry        Lowlights

ADVERTISING     Continued tight budgets meant limited job creation.
                Supermarket strike led to lower spending during holiday
                season. California Lottery extends its third agency
                search in five years for $100 million-plus account.
BANKING         Countrywide Financial, Washington Mutual and other
                major mortgage lenders began massive layoffs as refi
                business abated midyear, though interest rates remain
                at a 45-year low. Low rates hurt profits from the
                investment portfolios that accounted for up to 25
                percent of business in 2003.
DEFENSE         Costs of Lockheed Martin's F/A-22 Raptor spun out of
                control, resulting in cuts in procurements, while
                Boeing's commercial satellite business and 717
                passenger jet programs struggle to generate sales.
                Boeing Chief Executive Phil Condit resigned amid a
                scandal involving irregularities in the procurement
                of government contracts. With continued increases in
                defense spending,
ENERGY          Strict rules helped push pump prices over $2 a gallon
                in March, then prices came back to earth as supplies
                improved. An effort to allow businesses to have direct
                access to electricity suppliers stalled in the
                Legislature. Gov. Gray Davis failed in an effort to get
                state exempted from requirement to use higher-priced
                oxygenated gasoline.
FILM            Universal's "Hulk" and a spate of disappointing sequels
                were a drag on overall box office, as total gross will
                barely budge past last year's record $9.3 billion.
                DreamWorks couldn't repeat its success it had over of
                the past two years, Paramount managed only two films
                among Top 25 moneymakers, and Sony's busts included
                Charlie's Angels: Full Throttle and "Gigli."
HEALTH CARE     Health premiums continue to rise at double-digit rates.
                Tenet Healthcare is target of both civil and criminal
                probes. Granada Hills Hospital closes after being
                caught up in the failure of lender National Century
                Financial Enterprises.
HOUSING         Interest rates rose about three-quarters of a point
                since June and refi levels fell by two-thirds. Home
                prices began to plateau in higher end markets compared
                with 2002 late-year activity.
LAW             Besides the dissolution of Brobeck and Arter & Hadden,
                senior partners at O'Neill Lysaght & Sun and Fogel
                Feldman left boutiques that closed their doors. Riordan
                McKinzie merged.
REAL ESTATE     Downtown leasing remained flat while South Bay
(commercial)    continued to give back space. Average rents across the
                county declined in each quarter and were 3 percent off
                last year's levels.
RETAIL          Missing international tourists continued to hurt retail
                sales and jobs continued to be shed. The number of
                mortgage refinances dwindled by year's end, indicating
                a possible spending slowdown.
TECHNOLOGY      EUniverse delisted from Nasdaq for misstating financial
                results. Movie industry has yet to set standard for
                video-on-demand or digital projection, piracy of
                digital media remains a problem. Venture capital
                expected to continue rebound. Videogame and
TELEVISION      NBC yanked its randy comedy "Coupling," along with the
                critical favorite "Boomtown." The networks blamed a 7
                percent decline in young male viewers on the Nielsen
                ratings system; Nielsen argued that boys are likely
                playing more video games.
TOURISM         Room rates projected to be 2.6 percent lower than the
                year earlier countrywide. Domestic and international
                arrivals at LAX continue to lag gains at other major
                airports.
TRADE           Despite declarations that the local port complex is a
                top target for terrorist attacks, federal funding for
                improvements remained on hold. Some shippers began
                diverting cargo to East Coast ports over labor concerns
                and freeway congestion.

Industry        Outlook

ADVERTISING     Forecasts anticipate gains of 5 percent to 7 percent
                nationwide, nearly double the growth of past two years.
                Olympics and early California presidential primary will
                boost TV. Double-digit growth anticipated for Hispanic
                media. Nielsen Peoplemeters introduced in Los Angeles
                this quarter expected to tweak local television ratings
                in favor of cable channels next year.
BANKING         Most bankers expect low double-digit earnings growth in
                2004 with additional profits from fees and service
                charges.
DEFENSE         L.A.'s aerospace industry will see the addition of
                2,000 to 3,000 jobs in areas of fighter jet
                manufacturing, defense electronics, integrated systems,
                radars and research and development of black projects.
                Meanwhile, political wrangling continues over whether
                the Pentagon includes the L.A. Air Force Base in its
                next round of closures in 2005.
ENERGY          Direct access battle expected to resume in the
                Legislature and before the Public Utilities Commission.
                Sparks could fly if the new Republican governor lives up
                his campaign promise to oppose off-shore drilling.
FILM            Time Warner's New Line Cinema will have a
                less-than-stellar 2004 without more "Lord of the Rings"
                films on its slate. DreamWorks has a Tom Cruise vehicle
                in the works; the second "Spider-Man" film should make
                some noise.
HEALTH CARE     Health premiums should continue to rise at a strong
                clip. Hospital industry will continue to battle for
                changes to the state's landmark nurse staffing law.
                Doctors and hospitals will wage fierce battle to
                protest their bottom line against proposed state
                Medi-Cal budget cuts.
HOUSING         Rate of increase likely to fall from the 20 percent
                annual appreciation levels of recent years as fewer
                will be able to afford median-priced home. Appreciation
                in 2004 likely to be in the 10 percent to 13 percent
                range as interest rates expected to rise further.
LAW             Profits may increase 5 percent to 10 percent with
                non-lawyers hired to manage operations, more securities
                and entertainment litigation and new environmental and
                labor rules.
REAL ESTATE     Downtown Class-A vacancies will continue to rise as
(commercial)    leases come due and to-be-renovated Arco Plaza draws
                tenants. Class-B and lower markets tighten as buildings
                are taken off the market for residential conversions.
                Rents are expected to rebound slightly in broader
                market. Lack of new construction will keep investment
                activity strong.
RETAIL          Absent any major outside disruptions, retail will
                continue to modestly improve, led by mega-retailers
                like Wal-Mart.
TECHNOLOGY      semiconductor industries to continue expansion.
                Software jobs continue to be sourced to India.
TELEVISION      Poor ratings may force networks to cough up at least
                $100 million in "make-good" time to advertisers. NBC
                and Fox will likely account for most of those
                give-backs followed by ABC. Networks continue to pay top
                prices for rights to year's top films.
TOURISM         Average hotel occupancy expected to improve 2.8 percent
                over 2002 levels. For the first time in three years,
                hotel operators will raise room rates. Domestic air
                travel will continue to improve as business travel
                increases. International travel will be flat.
TRADE           After years of inaction, cooperation will allow some
                extended gate hours, easing traffic concerns by shifting
                cargo hauls to after-hours. Cargo volume is projected
                to rise by double digits at the Los Angeles
                port, and nearly 8 percent in Long Beach.

Contributors: Kate Berry, Laurence Darmiento, Darrell Satzman, David
Greenberg, Michael Thuresson, Danny King, RiShawn Biddle, Amanda
Bronstad, Andy Fixmer.