ECONOMIC WAR JITTERS L.A. AREA'S RECOVERY WOULD SLOW INITIALLY.

Byline: Lisa Mascaro Staff Writer

War in Iraq would slow Southern California's economic growth during the first half of 2003, but a decisive military victory could help bring an upswing by midyear, according to forecasts to be released today.

Los Angeles' regional five-county economy should perform better this year than cities in Northern California - unlike the recession of a decade ago - bolstered mainly by the aerospace and entertainment industries, international trade and homeland security.

But the hoped-for recovery from last year's recession would drag out as wary shoppers spend less, businesses delay capital investments and tourists initially stay closer to home, according to the Los Angeles County Economic Development Corp.'s annual Economic Forecast and Industry Outlook.

``There's likely to be a war going on soon. Even if we don't get to a war soon, people are thinking there's likely to be one,'' said the LAEDC's senior economist, Nancy D. Sidhu.

``They're postponing spending. Just a decision to wait a little while will cause the economy to slow.

``We're looking for a noticeable slowdown in the regional economy for the first part of this year. Then we should get back to the real business of recovery,'' she said.

Led by the county's chief economist, Jack Kyser, the authors decided to assume a war with Iraq as they set out to make their annual forecast, warning that they were without key pieces of information - ``how much, how big, how long,'' Sidhu said - before settling on a six-month battle beginning early in the year.

``We said, We're doing this forecast and we have to do that, because that's a key part for us,'' Kyser said.

Aerospace and homeland security should stand as bright spots in the regional economy, boosting the county's struggling manufacturing base with a new flow of defense work.

Movie-making is also on the upswing - the blockbuster ``Helldorado'' is being shot in the San Fernando Valley - after threatened labor strikes by actors and screenwriters slowed production last year.

And international trade is again growing after the port closures of late last year.

Still, local governments are expected to struggle. The state's nearly $35 billion deficit looms over the region, with cities, school districts and other public agencies slashing budgets, leaving little or no prospects for growth in the government sector.

Underlying the economists' assumptions is uncertainty over when war might actually break out and when it might end.

``The major risk to the national, state and regional economies is a long and drawn-out war in Iraq, accompanied by episodes of international terrorism,'' the authors wrote in their executive summary.

The transition to a defense economy can be seen in Chatsworth, where a small aviation electronics company ramped up its military sales to keep business on track in the wake of Sept. 11.

``You try to shift over to the more active segments of the industry. Our defense business is providing somewhat of an offset to the downturn in commercial airlines,'' said Steve Strull, president of the 50-year-old Air Electro.

Business is still off about 6 percent, he said, a far smaller hit than some of his competitors are experiencing.

``We feel pretty confident,'' Strull said. ``These things force you to become a little more creative, a little more innovative, work a little bit harder. We've managed to weather this out since 9-11.''

The forecast also points to a return to filmmaking in Los Angeles County after last year's labor strife, although concerns remain about production going to cheaper locations out of town.

Kathleen Milnes, a spokeswoman for the Entertainment Industry Development Corp., the agency that streamlines filming permits in the county, said 2003 has been off to a good start.

``Certainly the amount of activity we've had in the last six months, we've seen an uptick. We've started off strong this year,'' she said.

``Features are definitely ramped up. We are seeing a number of very large pictures staying in town. That's always good - they hire lots of people, build big sets,'' she said.

Kyser pointed to a number of new entertainment businesses that have set up shop in the Northwest Valley.

``That shows that despite concerns over runaway production, there is optimism in that segment,'' he said.

While Southern California is faring better than its counterparts up north, Los Angeles County trails its neighbors in the labor market.

The Riverside-San Bernardino area expects 3 percent employment growth, followed by Orange County at 1.4 percent, L.A. with 1 percent and Ventura County with 0.9 percent.

Los Angeles County's population is expected to increase 1.7 percent by Jan. 1, 2004, passing the 10 million mark.

Sidhu points to construction in the outer counties, where there's more room to build than in Los Angeles County - with the exception of Santa Clarita and the Antelope Valley to the north, where construction is still booming - as leading the way for job growth in those areas.

Housing prices are expected to climb by 15.5 percent this year to a median of $325,630. There's also a low probability of a price bubble, they said, except possibly for homes over the $500,000 mark.

Still, Los Angeles' core will see support from major construction projects that would boost the overall economic health - from the renovation of major medical centers at UCLA and County/USC to the many school construction projects coming out of bonds approved by voters last year.

The report also notes the opening of the Gold Line light rail between Pasadena and downtown as an important project for the region while the debut of the new Disney Concert Hall later this year could pique visitor interest.

Tourism, which suffered a 3.8 percent decline in 2002, is expected to get a boost this year, with a 1.7 percent increase in overnight visitors - new attractions at Universal Studios should help - though a war with Iraq would keep tourists away during the first part of the year, the report said.

Sidhu noted that despite the problems in tourism and commercial airlines, the Valley area benefits from Burbank Airport, which is ``blessed with Southwest,'' which is a star among the struggling airlines.

``On the other hand, if you have subcontractors, they're looking at another year'' of a soured commercial airline economy, she said.

Aerospace giant Boeing, the Valley's biggest employer with more than 4,000 workers, is also shifting gears with the changing economy, moving away from rocket engine work at its Canoga Park facility as the depressed telecommunications industry cuts back on commercial satellite launches, a company spokesman said.

Spokesman Dan Beck said the Rocketdyne plant can pick up work from other Boeing operations during the lull, while Boeing's laser and optics systems business in West Hills can shift to defense applications.

``Boeing's not even contemplating layoffs and cutbacks,'' Beck said. ``Given the uptick in defense operations, we'll be playing a role in those things as well. It's probably a safe bet numbers may fluctuate a bit, but we will be the largest employer in the Valley.''

CAPTION(S):

2 photos, box

Photo:

(1) Air Electro, a Chatsworth assembler of aircraft components, is ramping up its military sales.

David Sprague/Staff Photographer

(2) no caption (Los Angeles)

Box:

L.A. COUNTY ECONOMIC OUTLOOK, 2003