Economic upturn seen in second-half '92.

L.A. chamber forecasts local rebound will be modest

The Los Angeles regional economy will begin a mild rebound in the latter half of 1992, predicted Arthur Shaw, chief economist for the Los Angeles Area Chamber of Commerce, last week.

Shaw's optimism was presaged by mildly positive economic forecasts issued last week by San Francisco-based BankAmerica Corp. and the Congressional Budget Office, an arm of the U.S. Congress.

A slow national economic recovery, sparked by the lowest interest rates in 20 years, will pull Los Angeles out of the doldrums, said Shaw.

"The Los Angeles area has never failed to recover from a recession when the rest of the country did," he said. "And it won't fail this time."

However, the local recovery will be so slow -- hampered by weaknesses in employment, construction and retail sales -- that many businesses won't really feel a boost, cautioned Shaw.

"Unlike past recoveries, which were quite strong, this one will be slow. Before, you could always tell you were in a recovery, because it felt so much better than what happened before. In this recovery, many will feel that they are really just moving sideways."

Joked Shaw, "The good news is that the recession is over; the bad news is that this is the recovery."

Moreover, for local jobhunters, who are facing some of the toughest employment markets in 40 years, the good news will be delayed, said Shaw. "Employment is a lagging indicator," he warned. "It is only after the recovery begins that employers start hiring."

As of November, there were 4.29 million employed workers in Los Angeles County, down nearly 1 percent from a year earlier.

Nevertheless, Shaw predicted employment in the county will grow by 0.8 percent in 1992 over 1991 -- a far more bullish forecast than that of Jack Kyser, economist for the Los Angeles County Economic Development Corp., who has predicted a 0.5 percent job shrinkage this year.

But even with his more optimistic forecast, Shaw said the soft employment picture continues to haunt consumers and thus retailers: "Consumers are aware of the weak job market." That will translate into sluggish, if growing, retail sales through 1992, he said.

As of last October, retail sales in Los Angeles County were off 6.4 percent from year-earlier levels, and off about 10 percent after adjustment for inflation. Shaw figured that taxable retail sales, which fell by 5.6 percent in 1991 before adjustment for inflation, will rise 8.1 percent in 1992, in the county.

But construction will remain a weak point in the improving local economic picture, conceded Shaw. He forecast only 15,900 permits for housing starts will be issued in Los Angeles County in 1992, barely up from 1991, and off from as much as 70,214 permits issued in such boom years as 1986. (Nationwide, home construction hit a 46-year low in 1991.)

Commercial construction, still suffering from the office glut, will also be weak in 1992, predicted Shaw.

The hobbled construction industry is a major reason for the slow recovery, he said. "Most recoveries begin in housing, but there will be no strong housing recovery this year. We are in a credit crunch, caused by banking regulations. It is very unusual, a low-interest-rate credit crunch, but it is a crunch," said Shaw, referring to federal government mandates that have caused thrifts and banks to constrict lending.

Some figures in Shaw's report are a reminder of the huge scope of the Los Angeles regional economy. For example, in 1991 total population in the greater five-county Los Angeles region topped 15 million for the first time.

When combined with a per-capita personal income of $22,551 for 1992, that makes one of the largest consumer markets in the world.

The latest chamber economic forecast follows on the heels of two other recent more-optimistic economic forecasts, one from BankAmerica Corp. and another from the Congressional Budget Office.

According to the BankAmerica prediction, the state economy will begin to rebound in the second half, with Southern California lagging Northern California a bit. Said BofA economist Fred Cannon, "The state's industrial structure is too large and international trade potentials too enormous for California to experience a sustained regional recession."

Unemployment will continue to climb through the spring, but in the second half of the year the state economy will grow by 1.5 percent, BofA forecast.

The Congressional Budget Office last week also predicted the national economy would begin an anemic recovery in mid-1992. The national gross domestic product, a broad measure of economic activity, will increase by 1.6 percent in 1992, following a 0.8 percent decline in 1991, it predicted.

Inflation will be mild, coming in at 3.2 percent in 1992, compared with 4.2 percent in 1991, forecast the CBO. The slow economic growth will not be enough to sop up an increasing number of workers; thus the unemployment rate will rise to an average 6.9 percent in 1992, compared with 6.7 percent in 1991, according to the CBO.