The bounce is back: tourism sector shows its best year ever; technology begins to display new strength.

BANKING

Highlights: Most community and boutique banks delivered robust results this year even in a rising interest rate environment. Credit quality remained strong, and lower expenses for bad loans helped give a profit lift to commercial banks. Bank earnings, on average, rose 8.2 percent in 2005. Many banks continued to keep the lending floodgates open, particularly in L.A.'s hot real estate market ... There was some consolidation in niche markets. East West Bancorp Inc., a Chinese-American bank, doubled in size with its acquisition in mid-2005 of United National Bank in San Marino, one of the biggest local bank deals of the year ...

Lowlights: Rising interest rates are placing some pressure on net interest margins, which typically results in lending pullbacks. Some banks have already started to raise their prime rates, the interest they charge their best customers ... Banks didn't fare too well in the stock market this year either, not even coming close to their gains in 2004 ... Several banks, including City National, were targeted by federal regulators for alleged violations of the Bank Secrecy Act and other money laundering laws.

Outlook: Any large interest rate increases could spell trouble for banks, especially those that are heavy into real estate loans. Banks also are likely to feel increased pressure in 2006 as they try to manage risks and contain costs related to fraud control and identity theft.

Grade: B+

COMMERCIAL REAL ESTATE

Highlights: The year 2005 could go down as one of the best in commercial real estate history. Institutional investors and pension fund managers remained bullish, as the real estate sector outperformed the stock market. Prices for office buildings, hotels, retail centers and warehouses soared ... Maguire Properties Inc.'s assets grew by 20 percent when it paid $1.5 billion for an office portfolio that included 777 S. Figueroa Street ... Sunstone Hotel Investors Inc. surprised the market when it acquired the Century Plaza Hotel for $293 million ... New York-based Broadway Partners picked up the Aon Center, L.A.'s second tallest tower, for $190 million ... For the first time in nearly five years, rents and occupancy rates began to climb. In L.A. County the average office building was 12.2 percent vacant--down from 15 percent from last year. And asking rents averaged $2.52 a foot, up from $2.42 a foot a year earlier.

Lowlights: How long can the good times last? Buyers believe that the market will continue to appreciate at extraordinary rates while sellers believe the market has peaked. The California Public Employees Retirement System, the nation's largest pension fund, signaled that the market has topped-out. The fund sold off $9 billion in real estate nationally.

Outlook: With prices for office buildings reaching record levels, Arden Realty Inc. put itself up for sale, with a deal likely to be completed before the end of 2005 that could top $5 billion. Further consolidation in ownership of L.A.'s office buildings is likely ... Both UCLA and USC expect rents and occupancy will continue to trend upward in 2006.

Grade: B+

DEFENSE

Highlights: Local and congressional leaders lobbied successfully to keep the Los Angeles Air Force Base off the base closure list, which means hundreds of millions of dollars in defense-related contracts will continue to flow through there ... With defense spending up, more contracts and subcontracts came to L.A.-area defense firms, contributing to a 0.8 percent gain in aerospace employment, even as overall manufacturing employment was off 1.5 percent. That slight gain was also fueled by a healthy year in commercial jet orders from European, Asian and discount U.S. carriers. Among the top performers this year: Century City-based Northrop Grumman Corp., which saw strong demand for its Global Hawk and other unmanned aircraft.

Lowlights: As defense budget pressures mount, budget-cutters have C-17 military cargo plane production in their sights. Besides a loss in jobs at Boeing Co.'s Long Beach plant, the program's cancellation could have ripple effects among local subcontractors ... A strike involving 19,000 Boeing machinists in Torrance, Huntington Beach and at Edwards Air Force Base and elsewhere was settled after several weeks. About 1,500 rocket machinists are still on strike, however ... Northrop's shipbuilding facilities in Louisiana and Mississippi took a hit from back-to-back Gulf Coast hurricanes Katrina and Rita, remaining closed for six weeks.

Outlook: This past year may be about as good as it gets for a while. As Congress is less willing to pay for the wars in Afghanistan and Iraq with supplemental appropriations, money to fight these wars is likely to come out of existing weapons and military craft programs. Also, the need for billions of dollars for Gulf Coast reconstruction could divert even more defense program dollars.

Grade: C+

ENTERTAINMENT

Highlights: Apple Computer Inc. once again shook up the entertainment world with the fall release of its video iPod. Almost immediately, CBS and NBC struck deals to make programming available on the device, with others expected to follow. Bob Iger was tapped to take the reins at Walt Disney Co., bringing to a close Michael Eisner's two-decade term at the helm. Miramax cofounders Bob and Harvey Weinstein also parted ways with Disney, leaving behind the Miramax name and 550-film library in order to start their own media company. Paramount Pictures' end-of-year surprise acquisition of DreamWorks SKG kicked the studio's turnaround plans into high gear. The Viacom Inc. unit's deal surprised General Electric Co.'s NBC Universal unit, which had been negotiating with DreamWorks for months.

Lowlights: Falling theater attendance put a damper on studio revenues, with plenty of blame to go around--from skyrocketing ticket prices to the early release of movies on DVD. Another possible factor: additional competition from TV, with hit shows such as "Lost" and "Desperate Housewives." Studios say are already prepping for the possibility of strikes, although guild negotiations haven't even started and the Writers Guild of America and the Screen Actors Guild contracts expire in 2007 and 2008, respectively.

Outlook: The industry has to play catch-up to keep pace with the revolution in technology--such as on-demand and podcasting--that has radically altered methods of content distribution. Keep an eye on the Blu Ray/HD DVD battle shaping up between Sony Corp. and Microsoft Corp., since studios have chosen sides and the companies are staking a whole lot of money on the formats.

Grade: B

HEALTH

Highlights: Tenet Healthcare Corp. nearly met its goal of selling 14 hospitals in Los Angeles County by the end of 2005 as part of a restructuring plan prompted by its regulatory troubles over Medicare billing practices. Five more divestments were announced or completed, including Korean-owned CHA Medical Group's purchase of Hollywood Presbyterian Medical Center ... Gov. Arnold Schwarzenegger attempted to make peace with the California Nurses Association by abandoning efforts to overturn tougher nursing staff standards ... Illinois-based American Pharmaceutical Partners Inc. announced plans to acquire its largest shareholder, Santa Monica-based American BioScience Inc., in a $4.1 stock billion deal.

Lowlights: Health care inflation remained in the low double digits--a cumulative 73 percent growth in employer premiums since 2000 that has resulted in more businesses dropping employee coverage ... Plans to start awarding the first of $3 billion in Proposition 71 grants for stem cell research, approved by voters in 2004, were put on hold due to lawsuits from taxpayer and pro-life groups that are expected to go to trial in February ... Continuing lapses in care almost caused Martin Luther King Jr./Drew Medical Center to lose its accreditation. Dr. Thomas Garthwaite, the county's health director, had resigned.

Outlook: Garthwaite's departure sets the stage for a restructuring of the county's health department, which faces an $866 million deficit by 2009 and a continuing struggle with community activists over how to reform MLK. The new Medicare prescription drug program is set to take effect following the bumpy rollout of the plan this past fall.

Grade: C-

LABOR

Highlights: State labor unions mounted an aggressive $100 million campaign against four measures backed by Gov. Arnold Schwarzenegger in the November special election, including one that would have forced unions to seek consent from their members before making political contributions. Voters overwhelmingly defeated the measures at the polls in a campaign that also weakened Schwarzenegger politically. Locally, Antonio Villaraigosa, a former teacher's union member himself, was elected mayor of Los Angeles.

Lowlights: County Federation leader Miguel Contreras died of a heart attack at age 52. He was credited with building organized labor into a powerful political force. L.A. City Councilman Martin Ludlow was named to replace him, but city rules preventing Ludlow from lobbying elected officials for a year could limit his effectiveness in the early going ... Nationally, the Service Employees International Union led a faction of unions that broke away from the umbrella labor organization AFL-CIO, a major blow.

Outlook: While the impact of the labor division was not felt locally in 2005 because of the unifying effect of the campaign against the Schwarzenegger-backed initiatives, it will likely manifest itself during 2006, reducing the resources available to the County Federation of Labor. Internal conflict could also be looming among L.A. city employee unions. Department of Water & Power workers got a sweet deal from the city and other unions are clamoring for the same one, even though city leaders say they can't afford to make similar concessions. Meanwhile, next year will be crucial for Ludlow as he tries to put his stamp on local labor.

Grade: C+

LAW

Highlights: Litigation got a boost after a Supreme Court ruling in a case against Grokster Ltd. allowed entertainment and recording studios to sue Internet sites that provide free downloadable music ... Criminal crackdowns on spyware hit several local Internet companies, including Intermix Media Inc. Los Angeles defense attorneys got involved in large criminal fraud prosecutions of former partners at KPMG LLP and identity theft involving ChoicePoint accounts. Among local firms, Quinn Emanuel Urquhart Oliver & Hedges LLP and Irell & Manella LLP outshone their larger rivals in revenues and profits, but O'Melveny & Myers LLP is on track to shed a large liability with the $245 million sale of its 26-story downtown office tower. Meanwhile, the ever-expanding Bingham McCutchen LLP gained a big win with the return of former Mayor Richard Riordan, who founded the L.A. office as Riordan & McKinzie.

Lowlights: Coudert Brothers left several L.A. lawyers scrambling after shutting its doors ... Entertainment rainmaker Bert Fields and trial attorney Pierce O'Donnell became the subjects of widening criminal investigations ... Major shifts in leadership occurred at the local offices of the Securities and Exchange Commission and the FBI ... Federal prosecutors ended the corporate investigation of Gemstar-TV Guide International Inc.'s accounting practices without a single executive in jail. After more than a decade, California Insurance Commissioner John Garamendi obtained less than $900 million for the defrauded policyholders of Executive Life.

Outlook: Corporate work is anticipated to catch up to the level of litigation as more mergers and acquisitions become routine. Some firms may shun pure growth for internal restructuring and non-equity partnerships in order to boost profits. Trials are expected in the California Vioxx case against Merck & Co. and the investigation of Doug Dowie, former head of Fleishman-Hillard's Los Angeles office.

Grade: A-

RESIDENTIAL REAL ESTATE

Highlights: It was a great year to be a homeowner. Appreciation levels averaged close to 20 percent. In November, the median-priced L.A. County home was $525,000--a 21 percent increase from the like period a year earlier. Despite rising interest rates, the volume of 2005 home sales is expected to top a record set last year. Looking to cash in on the booming market, residential developers rushed mostly high-end projects onto the market. Condominium projects were red-hot in urban areas like downtown L.A. and Hollywood, while the majority of single-family homebuilders concentrated on outlying areas in north Los Angeles County.

Lowlights: It was a terrible year to become a homeowner. Rising prices have made ownership impossible for most L.A. County residents. As of October, only 12 percent of the population made the $133,000 salary needed to qualify for a conventional 30-year mortgage for the region's median-priced home. That disparity is one of the reasons interest-only loans have become popular in the region. But if home prices fall, homeowners with the riskier loans could find themselves in default.

Outlook: Economists say home prices will dip slightly next year in what many expect will be a soft landing. High housing demand, coupled with tough community barriers for new housing, should prevent a precipitous drop in values. Also, high material costs could crimp the supply of new housing and keep home prices stable.

Grade: B+

MEDIA

Highlights: Spanish media continued to heat up the radio and television market this year, with Univision Communications Inc.'s KMEX-TV (Channel 34) topping youth ratings for the first time this summer, and posting big primetime ratings growth over last year. Spanish radio was also at the top of the Los Angeles market this year, with a new style of music--the Spanish-inflected mix of hip-hop and dance music known as reggaeton--helping shake up the local market. Spanish Broadcasting Inc.'s KXOL-FM (96.3) got a ratings boost by changing from Spanish contemporary to reggaeton and a combination of American hip-hop and Spanish-language rap. The blogosphere continues to expand, with sites such as Gawker Media's Defamer.corn and the Huffington Post drawing readership and advertising dollars. A jump in web traffic was a rare bright spot in an otherwise dismal year for Tribune Co.'s Los Angeles Times.

Lowlights: Newspapers struggled to retain readership. Weekday circulation at the Times fell 3.8 percent, to 843,432. Changes abounded for the paper, most notably the departure of Publisher John Puerner and Editor John Carroll. More recently, there have been newsroom cuts, a printing plant closure and the dismissal of longtime columnist Robert Scheer ... With Adelphia Communications Corp.'s dissolution, Time Warner Cable Inc. will take over most of the L.A. market and try to improve upon woeful service problems.

Outlook: Like the music industry a few years ago, print media, cable and broadcasters face big challenges. Newspapers are not dead, but will have to work hard to muscle a traditional format into the digital age by driving Internet traffic and generating more online ad revenue.

Grade: C+

RETAIL

Highlights: Retail sales are projected to increase 7 percent to 8 percent over last year ... Federated Department Stores Inc. acquired May Department Stores Co. for $11.9 billion as consolidation continued and aging shopping malls got facelifts, including Westfield Century City, Westfield Fox Hills and the Del Amo Fashion Center ... At high-end outlets, premium denim fared well, a plus for local apparel companies such as Blue Holdings Inc. and Innovo Group Inc. ... Supermarket chains struggled to keep customers perusing their aisles amid competition from discounters and high-end specialty stores. Albertsons Inc. put itself up for sale, and Ron Burkle, managing partner of Yucaipa Cos., acquired stakes in Wild Oats Markets Inc. and Pathmark Stores Inc.

Lowlights: Federated moved to shutter more than 20 Robinsons-May and Macy's department stores in Southern California ... Macerich Co. put its redevelopment of Santa Monica Place on hold until Federated sorts out plans for the site's two department stores ... The textile deal with China could result in consumers paying higher prices at stores.

Outlook: Retailers face mounting uncertainty going into next year, given the cooling housing market, burgeoning debt loads and concern over the direction of energy prices ... Consolidation is expected to continue as mid-range retailers figure out their place in the retail picture.

Grade: B-

TECHNOLOGY

Highlights: With old media companies circling for choice Internet prey, it was hard not to get caught up in the frenzy. News Corp. snatched up L.A.-based Intermix Media Inc. for its MySpace.com social network. Viacom Inc.'s MTV unit bought virtual pet community Neopets Inc., and Time Warner Inc.'s AOL unit bought Santa Monica-based Weblogs Inc. Both NBC and ABC inked deals with Apple Computer Inc. to offer episodes of hit shows for download onto the video iPod. Yahoo Media moved to Santa Monica, hiring hundreds of news editors and tech-types. Yahoo Music moved across the street, launching a subscription-based music service to rival Napster Inc. ... Mobile game publisher Jamdat Mobile Inc. was acquired by Electronic Arts Inc. for $680 million, putting the seal of approval on the mobile games segment.

Lowlights: The recording industry failed to stem the tide of illegal music downloading, but still filed almost 1,000 lawsuits against individuals and college students for pirated music. L.A.-based Napster struggled against rivals iTunes, Yahoo Music and RealNetworks Inc. The anticipation of the next-generation consoles hurt video game publishers: Microsoft Corp.'s Xbox 360 was the only console to ship in time for the holidays, but stocks sold out in days.

Outlook: Old media companies will find ways to fit their offerings onto mobile phones and iPods--Internet companies, too. Helio, a $440 million joint venture between SK Telecom and EarthLink Inc., and Amp'd Mobile, backed by more than $67 million in venture funding, aim to combine cell phone service with entertainment and lifestyle features. Video game makers will struggle through the transition to next-generation consoles, and the industry is looking to mobile gaming for the next hot ticket.

Grade: B

TOURISM

Highlights: After rebounding from a post9/11 slump last year, travel to Los Angeles soared to record-breaking levels this year. Preliminary results showed 24.9 million visitors to L.A., more than the pre-9/11 high of 24.2 million in 2000. International travel to Los Angeles also increased, with notable gains from Europe, as well as South Korea, China and Hong Kong. All told, visitors spent an estimated $12.7 billion, compared with $12.5 billion a year earlier ... Hotel occupancy hit 78.54 percent for the year ended October 31, up over three points from last year. The average daily room price increased 7.4 percent, to $127.93.

Lowlights: Travelers faced high gas prices and crowded airports. Tourism from several Asian countries grew, although there was a leveling off in business from Japan, historically an important source of visitors to L.A. ... Las Vegas posted a formidable challenge; some Broadway shows and restaurants opted to set up shop in Las Vegas and skip L.A. ... The downtown hotel submarket didn't show the impressive growth of other county submarkets, with just a tiny gain in average room rates.

Outlook: Barring unforeseen disasters, L.A. is poised to post another healthy year. The number of visitors and total visitor spending are both expected to increase. With little hotel construction, however, these visitors should anticipate paying more to stay at hotels, with rooms harder to find.

Grade: B+

TRADE

Highlights: No congestion at the ports of Los Angeles and Long Beach this summer, thanks in part to extended gate hours. The Pierpass program has encountered sporadic complaints from neighbors and truckers ... The Long Beach port had an excellent year, with imports and exports up nearly 20 percent over 2004 levels ... At the L.A. port, Mayor Antonio Villaraigosa's appointment of Geraldine Knatz as port director was greeted positively by the local shipping community ... Several hundred million dollars in state and local funds were earmarked for ground transportation improvements around the ports, while passage of the Central American Free Trade Agreement opens up new markets to L.A.-area companies.

Lowlights: Fearing a repeat of 2004 congestion at the two ports, some container shipping companies diverted cargo to Seattle-Tacoma, Oakland and Baja Calif ... Environmental and neighborhood opposition has stalled a proposed Burlington Northern-Santa Fe rail yard near the Long Beach port and a terminal expansion within the port ... Former Mayor James Hahn's LAX improvement plan was officially declared dead in a settlement with neighbors around the airport. That means no increase in the ability of LAX to handle increased cargo volumes for the foreseeable future.

Outlook: Attention will focus on Gov. Arnold Schwarzenegger's multi-billion dollar infrastructure investment in moving goods ... The trade community will be eyeing any new plans for LAX and whether those plans include any provisions for cargo.

Grade: B