Inland Empire's economic recovery gaining steam.

Nearly 10,000 new jobs added to region in past year

The Inland Empire economy is in full recovery, as evidenced by employment statistics from the California Employment Development Department. The table shows that in August, 9,800 more people were employed in the Inland Empire than were employed a year earlier.

This evidence, while encouraging in itself, falls far short of the region's actual growth. That's because the EDD survey only includes firms that existed in the area five quarters ago, and much of the Inland Empire's growth is coming from start-up firms and firms known to have recently migrated to the area.

Why is the Inland Empire doing better than California as a whole? Land and housing are relatively inexpensive. Business is easier to conduct. And, local firms pay less TABULAR DATA OMITTED for labor than their L.A. or Orange County counterparts. For example, Inland Empire machinists make 47.3 percent less, executive secretaries 30.4 percent less, and production workers 8.4 percent less than their L.A. County counterparts.

Table B
Average monthly wages

                             Inland       Los Angeles           Orange
                             Empire

General Machinist            $2,203    $3,245    47.3%(*)   $3,143    42.7%(*)
Lathe Operator                2,113     3,011    42.5        2,160     2.2
Executive Secretary           2,226     2,903    30.4        2,808    26.1
Inspector Precision Mech.     1,990     2,535    27.4        2,186     9.8
Maintenance Carpenter         2,465     3,047    23.6        3,035    23.1
Order Clerk                   1,683     2,026    20.4        1,879    11.6
Scheduler                     2,182     2,605    19.4        2,545    16.6
Receptionist                  1,387     1,633    17.7        1,638    18.1
Produ. Machine Operator       1,508     1,768    17.2        1,538     2.0
Credit Clerk                  1,804     2,062    14.3        1,882     4.3
Personnel Assistant           2,167     2,450    13.1        2,453    13.2
Secretary II                  1,964     2,210    12.5        2,243    14.2
Lift Truck Operator           1,547     1,720    11.2        1,653     6.9
Maintenance Electrician       3,117     3,466    11.2        3,092    -8.8
Telephone Operator            1,547     1,720    11.2        1,653     6.9
General Clerk                 1,613     1,752     8.6        1,685     4.5
Production Worker             1,206     1,307     8.4        1,352    12.1
Shipping & Receiving          1,775     1,907     7.4        1,739    -2.0
Customer Service              1,747     1,868     6.9        2,186    25.1
Data Entry                    1,777     1,733    -2.5        1,689    -5.0

* Percent above or below Inland Empire wage

Source: The Employers Group [phone]

As a result of those competitive advantages, the Inland Empire has become a substantial economy. If the region were to be considered a separate state, its $48 billion economy would rank just behind Kansas, and in front of 18 states. The region's population of 2.9 million would rank right behind the statewide population of Oregon, and in front of 20 states.

The shape of the Inland Empire recovery holds lessons for California as it faces many of the same obstacles, and is based on the smaller, entrepreneurial firms which must lead the state's rebound.

Defense

Like California, job losses from shrinking defense contractors and base closures have hit the Inland Empire hard. Since 1991, 19,500 civilian and military jobs have been lost. The good news is that this is 83 percent of the total loss expected. From 1995 to 1997, a net of just 4,050 positions will vanish, as 750 new jobs at the Defense Finance & Ac- counting Service partially offset future contractor reductions and March Air Force Base's realignment.

Looking longer term, the area's defense vulnerability has been greatly reduced, as only 4,700 workers remain in the aircraft, missile and space industry.

Construction

Construction employment in the Inland Empire, as in California, is relatively flat. However, the conditions for a major round of new activity are forming. The new-home inventory of 3,769 units is the lowest since 1989 (see Chart 1). Existing and new-home sales are rising rapidly (see Chart 2). With Inland Empire house prices $100,000 below those in nearby counties, the residential sector is ripe for recovery.

Population migration figures support this optimism. Since 1990, Southern California has added 979,000 people, and 361,000 of those are in the Inland Empire. Even during the recession, domestic migration patterns have favored the area. In 1993, a net of 21,119 drivers migrated to the region, while L.A. County lost 112,842 and Orange County lost 13,924.

Meanwhile, though the office market has an 18.4 percent vacancy rate, the industrial vacancy rate is down to 10.6 percent. During the third quarter, 3.55 million square feet of Inland Empire industrial buildings were leased or sold, bringing the year-to-date industrial activity level to 10.79 million square feet, according to CB Commercial Real Estate Group Inc. (see Table E). If that pace continues, new industrial construction will be required.

Trade

Though the Inland Empire lacks ocean frontage, it is feeling California's ties to the world economy. Rail links to the nation's second-busiest ports (L.A. and Long Beach) have made it a hub of Pacific Rim-based intermodal transportation. Containers move from ships to trains, then come to the Inland Empire and are transferred to trucks.

With U.S. trade up 10.3 percent from 1993, a world economic recovery starting and GATT about to pass, this activity will increase. Also, both political parties support building the Alameda Corridor to speed trains between the ports and inland warehouses. Santa Fe Pacific Corp. is expanding its intermodal rail yards in San Bernardino. Union Pacific Corp. and Southern Pacific Rail are considering similar local actions.

These events, plus large tracts of industrial land, have made the Inland Empire a transportation and warehousing center. Since 1990, these fields have added 4,100 jobs. Some 1,100 of those jobs were created since August 1993, not counting jobs created at several new facilities.

Technology

As a newer economy and home to two major research centers, emerging technologies have become a key ingredient in Inland Empire employment growth. Thus, medical research at Loma Linda University Medical Center has helped spawn a host of sophisticated instrument manufacturing firms. And, with the support of U.S. farmers and industry, UC Riverside's genetic research aimed at agricultural pests, and its automotive research into clean technologies are encouraging local manufacturing.

In addition, the computer industry is developing a growing regional presence. Three of its fastest-growing businesses are ESRI, a world leader in GEO-based information systems; Health Data Science Corp., a national leader in paperless patient-tracking systems; and International Rectifier Corp., a major semiconductor manufacturer. They have been helped by UC Riverside's expanding research and student training in online networking and CD-ROM, plus the strong interest at the Loma Linda University Medical Center and area hospitals in using computer systems to lower medical costs.

In part due to these forces, since 1990, the Inland Empire has added 8,000 business service jobs, including many in the professions and at sophisticated computer firms. However, this growth also represents a less enviable theme -- the rise of full-time/part-time workers via employment agencies like Manpower Inc. Meanwhile, health services employment is up 9,100 workers; instrument manufacturers have added 1,000.

Table C
1992 Total Personal Income

Rank   State              Total Income
                            (billions)

29     Oklahoma                  52.63
30     Iowa                      51.22
31     Kansas                    48.76
32     INLAND EMPIRE             48.05
33     Arkansas                  37043
34     Mississippi               36.83
35     Nebraska                  30.37
36     Nevada                    28.93
37     West Virginia             28.22
38     Utah                      28.21
39     Hawaii                    25.66
40     New Wampshire             24.46
41     New Mexico                24.45
42     Maine                     22.46
43     Rhode Island              20.30
44     Idaho                     17.75
45     Delaware                  14.32
46     Montana                   13.34
47     Alaska                    12.97
48     South Dakota              12.18
49     North Dakota              10.81
50     Vermont                   10.74
51     Wyoming                    8.66

Hispanics

A key California theme is the rise of the Hispanic world. This is apparent in the Inland Empire. From 1980 to 1990, 40 percent of the region's 1 million new people were Hispanic. Since 1990, this growth has continued. Thus, local bilingual real estate firms like Espinoza Realty, which specialize in affordable housing, reported 1993 as their best year. It was the decade's worst for the overall industry.

In goods production, Hispanic themes have also emerged. Thus, Progressive Wheel has found Latin America to be a major market, with its exports rising from less than 5 percent of its total business in 1990 to more than 40 percent today. Matich Corp. reports having recently captured large Mexican road contracts. Such stories will increase with NAFTA now a reality.

Domestically, Mexican food processing has become one of America's fastest-growing industries. It is an important Inland Empire theme. Anita's Mexican Foods is one of the area's fastest-growing employers. Mission Foods recently announced it will open a major plant. Several competitors are known to be looking at the region.

Among the Inland Empire's most important themes is that much of its employment growth is coming from small entrepreneurial firms, not major employers. While diverse, these companies have much in common. They are largely unknown (e.g. Blaze-out, Games for Fun). Their initial investment often comes from credit cards or home equity loans. Even when they are growing, they are often considered too risky for conventional lenders. Most have little clout and must endure the full brunt of regulatory delays. Few of their owners have managerial experience.

Table D
1992 Total Population

Rank   State                Population

29     Oregon                2,971,567
30     INLAND EMPIRE         2,822,866
31     Iowa                  2,803,010
32     Mississippi           2,615,183
33     Kansas                2,515,294
34     Arkansas              2,394,244
35     Utah                  1,811,212
36     West Virginia         1,808,886
37     Nebraska              1,600,506
38     New Mexico            1,581,835
39     Nevada                1,336,428
40     Maine                 1,236,360
41     Hawaii               1,1155,721
42     New Hampshire         1,115,078
43     Idaho                 1,065,890
44     Rhode Island          1,001,381
45     Montana                 822,333
46     South Dakota            708,396
47     Delaware                690,890
48     North Dakota            634,033
49     Alaska                  587,755
50     Vermont                 571,360
51     Wyoming                 464,763

These firms represent the way a capitalistic economy regenerates itself. Some have started in the Inland Empire, often by former employees of relocated or downsized firms. The region has a disproportionate number of them, as owners have migrated to the area seeking lower business costs for their companies and housing costs for themselves.

When will the Inland Empire or California economies again flourish? To a large extent the answer lies with their ability to lessen the challenges faced by these firms. Can capital be routed to them as they grow? Can regulatory pressures be relieved? Can they get low-cost professional counseling?

Local government

If there is room for optimism in California, it is from the new attitude emerging in the governmental sector. In the Inland Empire, nearly every municipality is now scrutinizing how it interfaces with business. Economic summits are being held. Regulatory procedures examined. Response times tracked. Redevelopment priorities discussed. Contracting out is being considered and in some cases implemented. Regional cooperation, like joint marketing and one-stop film industry permitting, is under negotiation.

Will this process lead to fundamental changes in the governmental culture? No one knows. But, for the first time in decades, concern over competitiveness has moved to the center of the local political debate. Recessions are painful. However, this one is having the beneficial consequence of forcing local governments to confront their role in causing economic weakness.

As California and the Inland Empire move toward 1995, it is clear that both are beginning to feel the U.S. economic recovery. The Inland Empire is further into the process, because it is one of the state's most competitive regions. The local economy thus holds messages about the shape of the state's recovery.

Specifically, defense remains a problem, though less so. Construction is poised for an upsurge that has not yet started. International trade, technology, Hispanic and entrepreneurial forces are beginning to fuel growth. And, the government is considering action to make the economy more competitive.

Husing is interim president of the Inland Empire Economic Partnership, a nonprofit organization devoted to regional business retention and recruitment.