Growth slowdown seen for L.A. economy while California slips into a light recession.

Growth slowdown seen for L.A. economy while California slips into a light recession

Debunking the myth that it is somehow recession-proof, California will shuffle from economic slowdown into a mild recession by early next year, with Los Angeles County's financial outlook for 1991 only moderately better, economists said last week.

Though Los Angeles County's economy is not expected to slip into a recession, the region's continuing slump in aerospace, manufacturing and housing construction are expected to persist -- and grow worse -- well into 1991.

For example, the county's fourth quarter unemployment rate for 1990 was 6.5 percent but is projected to rise to between 7 percent and 7.5 percent in the first two quarters of 1991, according to the Los Angeles Area Chamber of Commerce. Expansion of the gross regional product, a key measure of all goods and services provided in the region, will slow to a 2.4 percent pace next year, totaling $222 billion, off from 1990's rate of 3.3 percent, the chamber reported.

Inflation, currently at a 5.8 percent annual pace, will slow to roughly 5.25 percent next year, according to the chamber statistics which are derived from state economic figures.

"In 1991, the Los Angeles economy will be pretty painful for many sectors, despite a few bright spots," said Jack Kyser, the chamber's chief economist. "Problems in manufacturing and aerospace, and slowness in retail sales, will be evident in the first quarter of 1991, but I think you will see signs of life in the third and fourth quarters."

In another sign that the "R" word has become reality for the Southland, help-wanted advertisements placed in the Los Angeles Times were down nearly 30 percent last November compared to a year ago.

The economic outlook is even more bleak for the state, according to UCLA Business Forecasting Project, whose recently released report is aptly titled "Downturn Intensifies, California is in a Recession."

California's gross state product, for example, is expected to shrink 2.1 percent by the end of this quarter, with continued negative growth of 3.6 percent and 1.8 percent in the first two quarters of 1991, UCLA projected. California's overall 1990 gross state product growth rate is expected to be 2 percent for 1990, but only 1.5 percent next year.

Reflecting the economic torpor, the Golden State's unemployment rate, presently at 6.5 percent, is forecast to rise to 7.1 percent in the first quarter of 1991 and 7.7 percent the next quarter, UCLA said. The forecasting project, part of the university's graduate school of management, projected unemployment will not dip below the 7 percent level until mid-1992.

Indeed, since July alone, California has lost 18,500 manufacturing jobs, including 6,800 in aersopace and 15,500 in construction. To make matters worse, a projected state budget deficit of $6 billion in the 1991-92 fiscal year will "almost certainly prompt a hiring freeze in state as well as many local governments," according to UCLA economist David Hensley.

"The conclusion in nearly incontrovertible," Hensley wrote in the forecast. "The bleak evidence on employment, help-wanted advertising, housing and retail sales in California . . . strongly suggests that, like the U.S., California has slipped into a recession."

Perhaps the only good news, according to UCLA, is that consumer prices, presently rising by 7.5 percent compared to the July-September period, are forecast to slow to a 4.1 percent growth rate in 1991's first quarter, 0.6 percent in the second quarter and 2.2 percent in the third.

Hit hard by defense cuts and the dismantling of the Berlin Wall, California's employment in aerospace manufacturing will continue to erode, most agree. UCLA predicts that aerospace jobs, currently at 343,000, will decline to 316,000 in 1991 and 293,000 the next year. That stands in sharp contrast to just two years ago, when 372,000 Californians worked in aerospace.

Said Hensley, "Continued declines in U.S. military spending make further lay-offs by California aerospace manufacturers likely," though firms may not cut back until specific weapon programs are cancelled by the Pentagon.

The most obvious indicator of California's hard times is the housing slump -- one that could mirror the tribulations of the 1982 recession. New housing units, according to UCLA's analysis of building permits issued, were 159,600 this year. Housing starts will fall to 96,200 in 1991 but rebound to 172,000 in 1992.

And unemployment in the construction industry will parallel that slump dropping 8.2 percent this quarter, 15.7 percent in first-quarter 1991 and another 14 percent in the second quarter. Relief for California construction workers, UCLA believes, may not be in store until 1992.

Some sectors of the California economy, however, should be able to ride the recession out without too many bruises. Only slight drops in employment in areas like transportation, trade, financial services and insurance are projected by UCLA, with small job increases in the fourth quarter. In foreign trade, where employment is presently off 1.2 percent, the last three quarters of 1990 are all expected to post moderate job gains.

The same can't be said for retail sales. Currently registering zero growth, retail sales will be off 8.6 percent in 1991's first quarter, with increases of 1.9 percent, 8.3 percent and 9.4 percent in the last three quarters, UCLA predicted.