Lasting job decline threatens aerospace workers.

Lasting job decline threatens aerospace workers

Warming East-West relations portend woes for industry

Unlike the many industries suffering from cyclical recessionary trends, the aerospace industry, traditionally a major employer in California, may be the victim of more lasting job losses, say economists.

The reason -- the economic consequences of peace.

"We don't see aerospace improving in the foreseeable future," said Brad Williams, economist with the California Commission on State Finance, the legislature's economic research and forecasting agency.

"The warming relations with the Soviet Union argue for a continuing decline in defense spending. War in the Middle East wouldn't change long-term spending that much. We see aerospace perhaps never recovering to where they were, or where they are now," Williams said.

The California Employment Development Department reported a loss of 15,800 jobs in the aerospace and high technology sector of Los Angeles County in the first 10 months of 1990, or a decline of 6 percent.

The commission on state finance predicts a loss of another 20,000 aerospace jobs in California in 1991, or a decline of about 5.3 percent. The UCLA Business Forecasting Project predicts that aerospace employment in California will fall 8 percent in 1991, 7.4 percent in 1992 and 5.8 percent in 1993.

Adrian Sanchez, a regional economist with Security Pacific Bank, said another industry that may not recover from its employment declines is furniture manufacturing. Furniture makers are leaving California for other states and countries because of Air Quality Management District rules, he noted.

Other California industries suffering lay-offs, such as construction and manufacturing, are expected to rebound with the economy, sometime between late 1991 and early 1993.

"Construction probably will recover. We see most of it as a cyclical thing," said Williams. "Manufacturing should grow 1 to 2 percent on the long-range basis."

The aerospace business, unlike most industries that depend on consumer spending, relies largely on the U.S. defense budget.

The commission on state finance estimates that defense spending, adjusted for inflation, will fall 6.3 percent this year in California. The UCLA quarterly forecast, released in December, predicted that "real" U.S. defense spending nationwide would decline 1.6 percent in 1991, 6.4 percent in 1992 and 7.2 percent in 1993.

"I don't think the industry follows general economic trends as much as it follows government spending," said David Napier, manager of the Economic Data Service for the Aerospace Industries Association.

The AIA reported a loss of 70,000 jobs nationwide in 1990 and predicts 30,000 more will be lost this year, but Napier said his organization doesn't make long-term future predictions.

"If war does break out (in the Middle East), will it be a quick, easy war, or like others, will it be a long drawn-out affair?" asked Napier, noting the possibility of a prolonged Cold War with Iraq and a "permanent" deployment of U.S. troops in the Persian Gulf, which could increase defense spending.

Napier also said the aerospace industry's dependency on U.S. government spending is decreasing.

AIA's annual forecast report, released last month, said exports by aerospace firms would hit a record $36.8 billion for 1990, up from $32.1 billion in 1989, resulting in a trade surplus of $26 billion.

Aerospace analyst George Shapiro, of the securities firm Salomon Bros. in New York, said aerospace business is cyclical, but the cycles are longer than they are in other industries. Defense spending likely will increase again eventually, he said.

"The defense industry has extremely long cycles," said Shapiro. "We're in the fifth year of a downturn, and it's likely to continue. The average cycle is 20 years. . . . There's enough history of war that the need will arise again for defense spending."

But analyst Lawrence Harris with Bateman Eichler, Hill Richards in Los Angeles said such predictions are not possible.

"I don't know if it's 10 years, 20 years or 30 years. It's a function of how the U.S. views itself on the world scene," said Harris. "The U.S. goes through periods of withdrawal from foreign affairs, followed by a period of activism. I don't know anyone who wakes up and says, `O.K. It's 20 years. Let's spend money on defense.'"

Harris said aerospace job losses "will be sustained over a long period of time" but may not last forever.

"Never say never," said Harris. "The long-term outlook is for a decline in defense spending. . . . There is no such thing as permanent."

But Sanchez, who predicts losses this year of 15,000 aerospace/defense jobs in Los Angeles County, said even if government spending on defense increases, it is unlikely the money would be spent with Southland firms, as it was during the presidency of former California governor Ronald Reagan.

"Even with the Middle East (crisis), defense spending is expected to decline. There is clearly an indication that, as time goes by, it will be a smaller part of California's economy," said Sanchez.

The industry now accounts for about 8 to 9 percent of Los Angeles County's economy, down from 15 percent five years ago.