BofA Says California Expansion On Track.

SAN FRANCISCO--(BUSINESS WIRE)--June 17, 1996--The California economy continues to improve dramatically with percentage job growth from a year earlier about twice the national rate in April, according to Howard Roth, vice president and director of Regional Economics at Bank of America. Moreover, California's current unemployment rate is the lowest it has been in more that five years, Roth points out in the latest edition of the bank's Economic & Business Outlook.

The BofA Economic & Business Outlook contains these additional observations:

-- The improvement in the state's labor markets has resulted in stronger growth in personal income and taxable sales. Also, the continued creation of new jobs probably has played a role in this year's pickup in home sales.

-- While the state's economic expansion is widespread geographically, the Bay Area, and to a lesser extent the Central Valley, are the strongest regions in the California economy. More specifically, the Santa Clara County economy is the fastest growing metropolitan area economy in the state, followed by the Santa Rosa-Petaluma and Sacramento Metropolitan Area economies.

-- California will continue to outpace the national economy in job growth and personal income growth through the end of 1997. In addition, prospects for growth in home building this year and next are better in the state than in the nation. In both job growth and in home building, California is playing catch-up after recovering later than most of the rest of the nation.

-- The state's recovery accelerated last year, even though the economies of two of its major trading partners -- Japan and Mexico -- languished, and state government in California continued to struggle with difficult fiscal conditions. The outlook for the Japanese and Mexican economies is better today, and the fiscal health of state government is considerably improved.

Roth notes that job growth has accelerated in the California economy. Between April 1993, the low point for employment in the recent recession, and April 1996, about 700,000 jobs were created. More than half of those jobs were added during the last 12 months of that three-year period. That job growth pushed California's unemployment rate down from 9.3 percent in April 1993 to 7.5 percent in April 1996. While still two percentage points higher than the national rate, a legacy of California's more severe recession, the state's unemployment rate has not been this low in more than five years.

A frequently expressed concern is that the new jobs might not pay as well as the manufacturing jobs that were lost during the recession, says Roth. The economy has about 270,000 fewer manufacturing jobs and 460,000 more service sector jobs today than when the recession began in 1990. But job gains in high-wage computer services, movie production, engineering and management consulting, securities and commodity brokerage, and holding and investment companies have offset many jobs lost in high-wage manufacturing, heavy construction, and public utilities. Overall, there was a net loss of about 75,000 jobs in high-wage industries in the six-year period. In the most recent year, however, more high-wage jobs were created than were lost -- an encouraging development, says Roth.

According to the report, preliminary estimates of taxable sales in 1995 reflect the continued improvement of the California economy in the last two years. Taxable sales grew 5.1 percent in 1994 and 5.2 percent in 1995 (not adjusted for the effects of inflation), in contrast to declines in 1991 and 1993, and the small gain in 1992.

Even with extremely wet weather holding down taxable sales in northern California in the first quarter of 1995, the Bay Area easily had the strongest growth in sales of the three major regions in the state for the year as a whole. Sales were particularly strong in Santa Clara County and, to a lesser extent, Alameda County, reflecting the strength of the Silicon Valley economy. Solid sales growth in San Francisco and Napa counties was driven, in part, by strong tourism. In Southern California, Orange County enjoyed stronger-than-average taxable sales growth -- an encouraging sign that most of the adverse effects of the county's bankruptcy may be behind it, says Roth.

Roth expects the strengthening California economy will support a modest housing recovery. Total residential permits in the first quarter of 1996 were up 22 percent from a year ago. Sixteen of the state's 25 metropolitan areas recorded increases in the first quarter of 1996, with the San Jose Metropolitan Area and Solano County showing particularly strong gains. In addition, existing home sales in the first four months of 1996 were 27 percent higher than a year ago. And there is increasing evidence that home prices are firming. While the fundamentals are quite good for an improved housing sector -- stronger job growth, relatively low interest rates, increased affordability -- the improvement in 1996 has been modest, being attributable, in part, to heavy rains and flooding in the first quarter of 1995. Residential construction and home sales were disappointing in 1995 for the year as a whole, says Roth.

Roth predicts the major risks to the outlook are a national recession and fiscal problems in some of the state's counties. Bank of America's forecast for the U.S. economy, however, does not include a recession. Rather, the bank's outlook calls for moderate growth of the U.S. economy in the next two years. In addition, the risk posed by Orange County's bankruptcy appears to be diminishing. In short, the outlook for the California economy is better today than it was a year ago.

CONTACT: Bank of America

Jack Houseman, 415/622-5324

Juliet Don, 415/622-1588