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Earthquake Damage May Slow Sluggish Southland Recovery : Economy: Less O.C. job growth is forecast, but cost of repairs is not likely to plunge the region back into recession.

January 25, 1994|JOHN O'DELL | TIMES STAFF WRITER

Southern California's sluggish economic recovery will be even slower this year as earthquake recovery takes precedence.

But as steep is it may be, the cost of recuperating from the Jan. 17 Northridge quake is not likely to drive Southern California back into a recession, according to area economists.

Economists said employment growth that had been predicted in Orange County this year is likely to flatten out a bit--perhaps a net gain of only 1,500 jobs instead of the 2,200 previously forecast by economists at Chapman University in Orange.

Los Angeles County sustained most of the quake damage and that has resulted in predictions of big increases in construction spending and employment. But Los Angeles, which was faring worse than Orange County even before the earth moved, should still lose about 30,000 jobs this year. The post-quake difference, economists said, is that there will be less trauma in the construction industry and more in retailing, services and manufacturing.

The earthquake--and the flood of speculation about how soon it will be until the long-awaited "Big One" hits--also is likely to speed up the manufacturing industry's exodus from Southern California.

But even that should not be enough to knock the region back into a full recession.

"Last week I would have been much more inclined to say we were looking at a significant economic setback," said Bruce DeVine, chief economist for the Southern California Assn. of Governments. "But the key is the transportation system, and it is starting to look like they'll have much of it operating in a week or two."

The region will suffer from "the very expensive replacement of fixed assets, a lot of which won't be covered by insurance or government, but at least there won't be an ongoing, daily shock to the economy because people simply can't get to places they need to go," he said. "If there was a recovery coming, this probably won't slow it down too much."

Esmael Adibi, director of Chapman University's Center for Economic Research, estimated quake-related damage to structures and building contents at $7.8 billion but said insurance and government programs should pay for about half of that. In addition, Chapman economists last week estimated that the earthquake will throw a chill on Southland tourism for the rest of the year--resulting in a loss of as much as $4.6 billion from reduced spending.

But Los Angeles County alone has an annual economy of $300 billion or more, and Orange County's annual economic output is about $70 billion. The $8 billion or so in uncovered losses, Adibi said, amounts to just 2.7% of the total regional economy.

The costs of digging out and rebuilding "will have a major impact," said Anil Puri, dean of the economics department at Cal State Fullerton. "We had seen some good signs of real growth in Southern California, and signs that business's attitude was becoming more optimistic, and this will hurt . . . but not enough to keep us in recession."

For Puri and other economists, the long-term question is what impact the quake will have on business decisions to move out of the area--or to stay out if they were considering relocating to Southern California.

Most experts, however, subscribe to the theory that business relocation decisions are made for other, more tangible reasons. "They look for market, transportation, the availability of trained employees, tax benefits and things like that," said Adibi.

If companies evacuated a place every time there was a natural disaster, the economists say, then Florida and much of the Midwest would be vacant. Hurricanes, tornadoes, sub-zero winters and massive flooding don't permanently damage those regions' economies, and the Northridge quake isn't likely to spawn a major exodus from Southern California.

Jim Renzas, executive vice president of Paragon Decision Resources Inc., an Irvine-based business relocation consulting company, said that there was a short-term movement out of the San Francisco area immediately after the Loma Prieta earthquake in 1989. "But there has been absolutely no major change in the business base there."

Companies most likely to move are companies already considering it--heavy industry and other businesses with large, relatively low-paid labor forces that are having problems remaining competitive in California, he said.

"In 1990, a year after Loma Prieta, there was a significant blip in San Francisco companies opening branches or, in some cases, relocating entirely, to Sacramento and Reno," Renzas said. "And I'd expect next year to see a blip of Southern California companies relocating to Phoenix and Las Vegas and probably some California areas outside the greater L.A. basin."

But tracking those movements back to the earthquake is impossible, he said, "because nobody, but nobody would ever admit that's why they moved. It doesn't play well from a publicity standpoint, so there always will be some other reason (given for why) they moved."

Renzas said he would not be doing his job if he didn't caution clients about the threat of a bigger earthquake hitting Southern California sometime in the next 30 to 40 years, but he still remains bullish on the region.

"The smaller, younger, 'knowledge' industries in technology, software and biotech are what carry the economy and they are very unlikely to relocate," Renzas said. "They need to be where the employment and knowledge base is at, and that's here."

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