Small firms expected to lead hiring.

In a surprisingly strong vote of confidence in the local economy, nearly 25 percent of L.A. County businesses plan to expand their operations within the next year, according to a survey being released this week.

And contrary to the popular view that businesses are leaving the area in droves, only 8 percent plan to relocate, according to the preliminary report by the Los Angeles County Economic Development Corp. More than two-thirds of those moving plan to extensive effort by the LAEDC to take the temperature of the local economy, was conducted for the LAEDC by the National Center for Business and Economic Research and queried 1,865 employers' attitudes on issues ranging from relocation to hiring and business expansion. It was taken between April and July, and will be updated quarterly.

Among its main findings:

* While jobs are expected to grow overall, the projected gain is only 1.9 percent.

* Finance and construction, both related to the strong real estate market, are expecting the strongest increase in work force, while the manufacturing and wholesale sectors are expected to shed jobs.

* Employers in the geographic areas that have suffered worst in the recession and market downturn--the South Bay and South L.A.--project the strongest rebound.

* Most companies are profitable and expect revenue gains in the coming 12 months.

Companies stay put

Perhaps most surprising is the data on corporate relocations. The notion that companies are leaving Los Angeles because of high business costs such as workers' compensation or the high regulatory burden did not hold up in the survey.

In all, only about 2.5 percent of the businesses surveyed said they planned to leave the area, and "insufficient room for expansion" was cited as the biggest factor among those who were relocating.

Though companies with 250 or more employees are more likely to say they will leave the area, very few have actually done so. "It's overblown," said Jack Kyser, chief economist at the LAEDC, a private, non-profit business group, referring to all the talk by companies that they will leave the area. (Business Journal Publisher Matthew Toledo is chairman of the LAEDC.)

While overall job growth remains anemic, the finance and construction sectors expect strong job creation of 7.3 percent and 6.5 percent, respectively, in the coming year.

"The big message that comes through is that the economy in L.A. County is holding up pretty well, though we do have this challenge of business costs and regulations," Kyser said. Employers may be staying put, but they still complained about regulations, taxes and the generally tough economic climate.

"Regulations" were cited by 34 percent of respondents as the biggest barrier to expansion, followed by "taxes," "availability of qualified labor" and "recruiting and retaining key employees."

While 80 percent of respondents said their companies were profitable last year, and nearly 50 percent said revenues this year were greater than a year ago, the majority described a lackluster economy that is cutting into sales and profits.

Not surprisingly, the lodging industry was the most likely to report a negative impact from the local economy, followed by health services and business services.

Manufacturers are struggling due to competition from businesses moving offshore. Los Angeles County is the second-largest manufacturing center in the U.S., behind only Chicago, with 505,000 people working in the sector.

Manufacturers and wholesale traders with more than 10 percent of their revenues from exports are the most likely to lay off workers in the coming year. By contrast, mid-sized employers with anywhere from 50 to 250 workers are the most likely to hire new workers.

Profitable pockets

The survey also looked at which regions will see the most growth.

Companies in the South Bay, Westside and Gateway cities such as Vernon, Downey, Paramount and Cerritos reported the strongest outlook for the year ahead.

The South Bay's growth comes because the area is rebounding after severe cutbacks in the defense industry and a downturn in technology.

Redevelopment also appears to be invigorating older cities like Santa Fe Springs, which has turned several of its old oil fields into industrial space. Meanwhile, the San Gabriel Valley, which has experienced strong growth in the past five years, may have peaked.

But overall, there's a general feeling that businesses are slowly coming out of their shells.

"Businesses are cautiously optimistic about expanding, moving from being stagnant to just starting to think about adding staff," said Jo Ann Bourne, executive vice president at Union Bank of California, a major lender to bread-and-butter businesses in the manufacturing, distribution and services sectors.

Still, Bourne doesn't expect a turnaround in the economy until the second half of 2004. "Businesses have been very quiet, very conservative for the past 18 months," she said.

Meanwhile, health care companies were having the hardest time finding qualified workers. Nearly 75 percent of employers at health care firms reported "some" or "'great" difficulty filling available jobs.

Nancy Johnson, vice president of health care and chief nursing officer, at OnStaff, a temporary placement agency, said the shortage for medical personnel is only going to get worse.

"What most people don't realize is that if they have a serious illness, they are not going to be able to get 24-hour care even if they can afford it," she said. "No one is there to fill the jobs."

OnStaff tries to recruit nurses from outside California to fill permanent positions at hospitals here. Nurses already working in California, she said, have more leverage at getting higher salaries and benefits.

Growth Plans

Expansion trumps relocation.

Expanding    24%

Relocating    8%

Downsizing    4%

Closing       1%

Note: Table made from bar graph.

Source: Los Angeles County Economic Development Corp.

Keeping It Local

Few relocating out of state.

International       5%
Out of State       11%
Within the State   16%
Local              68%

Source: Los Angeles County Economic Development Corp.

Note: Table made from bar graph.