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FED ECONOMIST PUTS CALIFORNIA WOES IN PERSPECTIVE

 FED ECONOMIST PUTS CALIFORNIA WOES IN PERSPECTIVE
 SAN FRANCISCO, June 16 /PRNewswire/ -- Improvement in the national economy should bring a recovery to California, although the problems California faces are serious ones that will delay and restrain the recovery, said Carolyn Sherwood-Call, an economist at the Federal Reserve Bank of San Francisco.
 Writing in the Bank's Weekly Letter of June 19, she noted that California is in its longest and deepest recession since World War II, and the first since 1970 in which California has done worse than the nation. The state has lost more than a half million jobs in the last two years.
 Noting that real defense spending in California has fallen more than 13 percent since its 1988 peak and the state has lost more than 50,000 jobs during the past two years, the regional economist said some reports have overemphasized defense's role in the state economy. She noted that defense accounted for 11 1/2 percent of the state's production in 1971 (when California began its recovery from the 1970 recession), compared to the seven percent defense provides today. In the earlier episode, cutbacks in California defense spending continued until 1975.
 "This suggests," she said, "that California could recover smartly from the most recent recession -- even in the midst of defense cutbacks -- if the rest of the economy is sufficiently robust."
 Regarding California's weak real estate and construction sectors, Sherwood-Call said the state's current situation is comparable to other U.S. areas with real estate and construction downturns, and that in some respects the current downturn in construction is no worse than the state's problems during the early 1980s. However, substantial overbuilding in commercial real estate, and resulting declines in lease rates and property values, suggest that commercial real estate problems are likely to persist for at least a couple of years.
 Nevertheless, she pointed out that "there are some promising signs on the residential side. Lower interest rates have been breathing some life into residential sales, and also bode well for an improvement in home-building activity."
 In addition, Sherwood-Call noted that population continues to grow: "even though net migration from other states has dropped sharply in recent years, natural increase and some 250,000 foreign immigrants led to a 670,000 net gain in population during 1991."
 While complaints about California's business climate have grown louder in recent years, the economist noted that 44 of the Fortune 500 companies are headquartered in California, an increase of six since 1986. "In addition," she added, "17 percent of Inc. magazine's 500 fastest-growing companies of 1991 also are California-based. These statistics make it clear that, in spite of its very real problems, many companies still find California a good place to do business."
 -0- 6/16/92
 /CONTACT: Carolyn Sherwood-Call of The Federal Reserve Bank of San Francisco, 415-974-3175/ CO: Federal Reserve Bank of San Francisco ST: California IN: FIN SU: ECO


RM-DG -- SF007 -- 0703 06/16/92 13:21 EDT
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Date:Jun 16, 1992
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