Manufacturing loses ground but prognosis improves: healthy aerospace sector bucks trend.

L.A. County's embattled manufacturing industry lost 15,700 jobs last year, but the sector is ready for a modest rebound as spending in defense, transportation and other areas picks up, according to a report by the Los Angeles County Economic Development Corp.

Competition from low-cost Chinese imports and high industrial rents extended a long decline of the county's industrial sector, which employed 484,200 last year, down 3.1 percent from 2003, according to the report.

"Despite these job losses, which in L.A. County have been pretty horrendous, too many people are saying that manufacturing in L.A. has gone away--but it hasn't," said Jack Kyser, a senior economist who co-wrote the report.

The vitality of the industrial base has been a critical factor in the health of the region's overall economy, especially as the region faces increasingly stiff competition from abroad.

A decade ago, huge aerospace losses brought the region to its knees, but the latest report shows that the sector is far healthier. Southern California also remains the largest manufacturing center in the country, employing 930,000 workers last year.

While there are key trouble spots, such as Chinese imports and high overhead costs, the report also maintains that the region can maintain its leading manufacturing role if state and regional lawmakers take steps to improve the business climate, such as by restoring the state's manufacturing investment credit.

Non-durable weakness

One problem area, according to the report, was a surge in apparel imports from China following the lifting in January of World Trade Organization apparel quotas.

Nearly 45 percent of the County's manufacturing jobs were in the non-durable sector last year, with apparel and textiles the hardest hit. In February, combined textile and apparel manufacturing employed 83,800, down 6.7 percent from February 2004, when 86,800 were employed, the report states.

The county suffered a bigger blow than surrounding counties because so much of its manufacturing is concentrated in non-durables. That sector is particularly vulnerable to low-cost imports such as household goods.

The county is also suffering from a lack of available industrial real estate, the report concluded.

The county's industrial vacancy rate was 2.4 percent last year and 1.2 percent in the San Gabriel Valley, where a good share of the county's industrial space is concentrated. By contrast, the industrial vacancy rate in surrounding counties ranged from 8.1 percent to 4.4 percent.

The California Manufacturing and Technology Association, a statewide trade association, lauded the report but wanted more attention paid to the issue of energy rates.

"California manufacturers were hit disproportionately hard in the energy crisis and we're paying rates in industrial territories that are 80 to 100 percent above the national average," said Dorothy Rothrock, the association's chief lobbyist. "It's really putting the squeeze on some companies and making it difficult for them to stay competitive."

The association is calling on the state Public Utilities Commission to address the issue by better aligning the cost to produce electricity with user rates.

The report claimed that the continuing job losses in manufacturing somewhat belie the sector's health because high labor costs in California mean that firms are investing more in plants and equipment and increasing productivity--something that would not be reflected in employment numbers.

Moreover, the report projected stabilization of job losses and some growth by the end of the year as growth in the durable goods sector outpaced continuing losses elsewhere.

Kyser projected that employment in manufacturing of transportation equipment, including aircraft and aircraft parts, would continue to grow. Aerospace manufacturing had lost jobs for years prior to the recent defense build up, but now added jobs nearly every month since November 2003, when the sector employed just 39,100 workers.

Michael Bazdarich, senior economist at UCLA's Anderson Forecast, expects that the national and statewide economic recovery will trickle down to L.A. County manufacturing.

"Consumer spending is split about 60-40 between services and manufactured goods, so when consumer spending picks up, it also stimulates manufacturing," Bazdarich said. "Capital spending and exports are also up more now than in previous recoveries, and that essentially affects all manufacturing."

Even so, the report urged state lawmakers to do more to stimulate employment manufacturing by relaxing overtime laws, addressing the high cost of electricity and re-instating the manufacturers investment tax credit that expired last year.

"You can't continue to hemorrhage these manufacturing jobs," Kyser said. "Many are good-paying jobs with benefits. We have a high high school drop-out rate and these people can get good jobs with manufacturers, who often do on-the-job training or will send people to community college or vocational school."