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Slumps in Oil and Electronics Industries Trim Earnings for California Economy : Slumps in Oil, Electronics Trim Earnings for California Economy

June 08, 1986|DENISE GELLENE | Times Staff Writer

California's economy last year suffered from twin slumps in oil and electronics, two of the state's largest and most important industries.

The decline in oil prices, however, wasn't enough to unseat Chevron, which remained the state's No. 1 industrial company with $45.3 billion in sales for 1985.

Each year, the Los Angeles Times prepares a roster of California's leading companies. In last year's report, California firms soared. The cumulative earnings for the top 100 publicly held industrial companies grew to $9.6 billion--up 23% in the first year of the post-recession economy.

But in 1985, earnings plummeted to $5.5 billion, nearly a 40% drop. Most of that decline is attributable to Big Oil and electronics. In fact, four giant oil-related concerns--Atlantic Richfield, Occidental Petroleum, Unocal and Fluor--are responsible for more than one-third of the earnings decline.

Overall Economic Growth

The poor results of the oil and electronics firms may obscure what was a good year for many elements of California's diverse economy. Economists point out that the state's economy as a whole grew. They point to UCLA's estimate that the state's economy grew by 4.8% in 1985, compared to a 2.2% increase in the U.S. gross national product.

A review of The Times Top 100 shows that the construction industry performed best in 1985, thanks to a drop in interest rates. The home construction boom, in turn, gave a boost to service businesses, such as restaurants and dry cleaners, as new homeowners looked for places to eat and and launder their clothes.

Several large companies familiar to generations of Californians, including Levi Strauss, MGM/UA Entertainment and Signal Cos., are missing from this year's list, either because they were merged into out-of-state firms or because they became private companies.

Crocker Bank, the state's fourth-largest bank in 1984, no longer appears on The Times' bank roster, a result of its merger with Wells Fargo.

The Times also ranks several other business categories separately.

American Savings & Loan Assn. was ranked as the No. 1 S&L in 1985 in assets, although it has slipped to No. 2 in the first quarter of 1986, behind Home Savings of America.

Executive Life Insurance Co. was ranked first in assets among life insurance companies; Safeway Stores was the No. 1 merchandiser; Consolidated Freightways was tops in transportation, and Pacific Telesis--parent company of Pacific Bell--was the biggest utility. Bank of America remained the No. 1 bank, with $106.1 billion in assets, while its parent, BankAmerica Corp., was the biggest financial holding company.

It now appears that--at least for the oil industry--last year provided an unwelcome preview of 1986. The recession in the oil industry has deepened, as crude oil prices on world markets have dropped to under $15 from $26 last December.

Outlook for Electronics Brighter

The 1986 outlook in electronics is somewhat brighter than for oil. Economists said computer makers now show signs of recovery. Corporations that resisted computer purchases over the past year are showing renewed interest in buying computer equipment, economists said.

World Semiconductor Trade Statistics, a firm that tracks semiconductor--or computer chip--sales, recently predicted that domestic semiconductor sales would increase by 11.5% this year to $9 billion, after a sharp 30% decline last year. Industry officials also said semiconductor orders have increased monthly for the first four months of this year.

Even so, Jeanette Garretty, a Bank of America economist, is not particularly enthusiastic about the prospects of the semiconductor industry noting the intense foreign competition.

The firms involved in defense electronics also face uncertainty in the coming year because of efforts to deal with the federal budget deficit. Aerospace employment in California grew by 3.1% in 1985, compared to 7.9% growth in 1984. Economists expect 1986 employment growth in aerospace to remain near last year's level.

Garretty expects greater economic balance this year as overall growth slows somewhat. "We won't see extraordinary strengths balanced by extraordinary weaknesses. It will be a much more even year," she said.

The construction industry should continue to do well this year, economists said. Lower mortgage rates spurred demand for new construction. Last year, 263,000 housing permits were issued in California, a 19% gain over 1984.

The housing boom benefited two California-based home builders--Kaufman & Broad (No. 38) and Standard Pacific (No. 74), both of which reported sales increases over 25%. Two construction engineering firms, Jacobs Engineering (No. 85) and Guy F. Atkinson Co. of California (No. 37), also reported gains.

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