Experts, index differ on outlook for small business and economy.

Experts, index differ on outlook for small business and economy

A small business climate index compiled by American Express is signaling relief from the national recession starting this summer. It cites "a rebounding housing market, relatively strong exports, low interest rates and a return to normal consumption patterns" as a combination that should propel recovery.

But does American Express' national forecast ring true for Los Angeles County small businesses, and the county's economy as a whole?

In some cases no. The recession should last a little longer for small businesses and the county economy, according to one local forecasting report.

But another report, issued by a Los Angeles-based company, mostly agrees with the American Express index predictions.

A press release authored by American Express about its business index, issued in late April, said, "The outlook for small business owners (nationally) indicates a continued recession through the spring, with economic recovery coming into view as summer approaches....

"However, on a more positive note, operating costs will rise more slowly than a year ago, interest rates are expected to drop, making it easier for small businesses to secure loans, and overall small business optimism is predicted to rise."

Four components of the index, researched by DRI/McGraw-Hill in New York, a financial services company, are small business demand, the typical interest

rate on small business loans, small business operating costs index and the small business optimism index.

The demand index is expected to increase 8.27 percent in the third quarter of 1991, compared to a 1.49 percent drop in the same quarter 1990.

The interest rate on small loans was at 11.48 percent in the third quarter 1990, but the index expects it to fall in this year's same quarter to 10.94 percent.

Small businesses' operating costs were forecast to rise 3.03 percent in the third quarter from a year ago.

The optimism index, gathered from a survey of small business owners by the National Federation of Independent Businesses, is forecasted at 100.98 in the third quarter of this year, up from 98.20 in the third quarter 1990.

Yet, an article in the Quarterly California Forecast, published in March by the UCLA Business Forecasting Project, saw a somewhat different picture for projected recovery in California and Los Angeles County.

"Probably the biggest single risk in the forecast lies in real estate and construction," the article claimed. "The slowdown in California is relatively recent and the dimensions of the problems in real estate probably are not yet fully realized."

However, the article did claim that "prospects are brighter on the residential side."

The report notes housing construction has fallen over the past year, but with the "high rate" of household formation, a glut of new homes should be eliminated by summer or fall.

The article's prediction of tightening housing supply coincides with American Express' index forecasting a recovery in housing.

But, the UCLA business forecast presented a stark contrast with American Express' report. UCLA cited "special factors which might postpone the recovery" in California: "The severity and relative newness of the slump in construction and real estate in California; the enormous state budget deficit, estimated to be $9.5 billion over the next 15 months; the California drought, which could have far reaching impacts on sectors ranging from agriculture to construction; and defense layoffs, which are likely to continue throughout the forecast interval."