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Success Story : Business Failures Declined 15% in California Last Year

February 23, 1995|VICKI TORRES | TIMES STAFF WRITER

Business failures in California declined nearly 15% in 1994, providing further evidence that the state's long-troubled economy is continuing its recovery.

Last year, 16,803 California firms went out of business, compared to 19,746 in 1993, according to figures released Wednesday by Dun & Bradstreet Corp.

It marks the second consecutive year that business failures declined in the state, but the improvement was much stronger last year than in 1993, when the drop in business closures came to less than 1%.

Nationally, 71,520 businesses failed, down about 17% from 1993, according to Dun & Bradstreet, which compiles its figures from bankruptcy, receivership and other court filings.

The decrease in business failures reflects the strength of the nation's economy, said Joseph W. Duncan, corporate economist for the New York-based business information service.

In contrast, business failures skyrocketed during 1991's recession. That year, business failures increased 96% nationally over the previous year, with more than 87,000 companies going out of business. They peaked in 1992 at 97,069 nationwide.

"The relatively low level of business failures during 1994 reflects strong business balance sheets in almost all regions," Duncan said.

Outstanding debt by failed companies also decreased in California and nationwide. Those figures reflect the amount of money companies owe suppliers and other creditors when they go out of business. A decrease in the amount of money owed is a good sign for the economy because it reflects fewer unpaid debts, Dun & Bradstreet spokesman Art Leach said.

The outstanding debt of failed California businesses dropped 41% to $7.4 billion last year. Nationally, outstanding debt fell 38.5% to $29.4 billion.

The 1994 figures show business failures sharply declined in all U.S. geographic regions. The declines range from nearly 30% in the New England states to nearly 13% in the Pacific region.

Failures in virtually all industries across the country declined, with retail failures down 30% in the New England states and manufacturing failures down 28% in the northeast-central states.

Although California did show a decrease in business failures, its recovery has lagged behind the rest of the country. But many economists expect the state to see better economic times soon.

California typically feels economic downturns later than the rest of the country, said Jack Kyser, chief economist with the Los Angeles County Economic Development Corp. That may explain why the state's decrease in business failures did not match the rate of the nation as a whole.

"The national economy has been in recovery since mid-1991," Kyser said. "California did not recover until late 1993."

When California did feel the pinch, it was squeezed hard by aerospace industry downsizing and a decrease in orders for commercial aircraft. As those industries closed or cut back, smaller suppliers, from machine shops to forging facilities to landscapers, were forced out of business, Kyser said.

Also contributing to California's slump were commercial overbuilding and the subsequent construction slowdown, as well as businesses moving out of California. A significant number of individuals forced out of work have started new businesses, Kyser said, increasing competition here and forcing even more businesses to close.

"What we have been through in the state has been a pretty unnerving situation, so this is what you see in the business data," he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Better Business

The number of business failures and the total of their indebtedness declined in California and nationwide in 1994. The state's decline was smaller than that for the nation, consistent with the lagging business cycle in California. The failures include businesses that ceased operations because of bankruptcy or foreclosure or that voluntarily withdrew because of financial trouble. Liabilities are the accumulated indebtedness of the failed firms.

UNITED STATES

Number of failures, in thousands:

1994: 71,520

Liabilities, in billions of dollars:

1994: $29.4

CALIFORNIA

Number of failures, in thousands:

1994: 16,803

Liabilities, in billions of dollars:

1994: $7.4

Note: 1994 figures are preliminary.

Source: Dun & Bradstreet

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