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SUNDAY FORUM / JACK KYSER

Solid Evidence to Support That Los Angeles Area Is Rebounding

October 22, 1995|JACK KYSER | JACK KYSER is the chief economist of the Economic Development Corp. of Los Angeles County

The economic news about the Los Angeles area seems to blow hot and cold. People are not convinced that there are any real signs of life out there, pointing to still declining home prices and the financial woes of the governments of both Los Angeles and Orange counties. Adding fuel to the fires of disbelief was a recent Census Bureau report that the five-county Los Angeles area experienced a net outward migration of 351,000 people between March, 1993, and March, 1994. California suffered a net out-migration of 236,000 over the same period.

So when I say the Los Angeles area economy is in a rebound, I am frequently challenged to prove it. How about some hard facts?

Here they are:

* Total annualized wage and salary employment growth in the five-county area for 1995 should approach 115,000 jobs. This is about a 2% growth rate that should bring down unemployment rates for the four local metropolitan areas. In Los Angeles County, the 1995 average should be 7.8%, compared to 9.4% in 1994, while in Orange County the rate should ease down to 5.4% compared to 5.8% in 1994.

* Motion picture industry growth in 1995 is estimated at 27,000 jobs in Los Angeles County. Moreover, new space requirements to accommodate this growth are around 800,000 square feet. And Warner Bros. has just gotten approval of a major expansion of its studios.

* Engineering and management services are growing at an 18,000-job rate for 1995.

* Apparel design/manufacturing activities continue to move slowly but steadily ahead.

* Employment in electronics manufacturing has bottomed out and modest year-to-year job gains are now being recorded.

* Two-way trade value at the Los Angeles Customs District is up 19% so far in 1995, on the heels of a 13% gain in 1994. Export activity is up 23% so far this year, after a 15% advance last year. And the Los Angeles District will easily retain its No. 1 ranking among the nation's customs districts.

* Industrial vacancy rates in the Los Angeles area are down to 7.9% as of mid-1995, compared to 9.4% a year ago. Some subregions report even lower rates.

* New industrial construction is up for the second year in a row, with a 52% increase in valuations, compared to a 24% gain last year. And there is a shortage of large blocks (100,000 square feet plus) of high-quality industrial/distribution space in the area.

* There is a recovery in new-home building underway, but admittedly we are coming out of the basement. However, new home construction in Los Angeles County is up 15% this year.

* Total retail sales in the five-county area are up 4.2% so far in 1995 (Los Angeles County is doing slightly better with a 5% gain). Real estate brokers report a shortage of sites for the "big box" retailers like Home Depot and Wal-Mart.

* The consumer price index in the five-county area is increasing at just a 1.7% rate, compared to a 2.9% advance for the nation as a whole.

This is pretty solid evidence of an economic rebound. But note that I said rebound, not recovery.

Recovery generally means that people who have lost jobs in a classic recession scenario will get them back, but this is not the case. The Los Angeles area economy is in a major restructuring, and the rebound will move in different ways. The jobs lost in aerospace, financial services and retailing are gone forever, and that brings up another challenge to the thesis of economic rebound, that we are creating nothing but "hamburger flipper" type of jobs after having lost all those high-wage aerospace jobs.

Much of our job growth is in well-paying sectors, especially in professional management services, and in motion picture production. What is happening is a "dislocation." Displaced aerospace workers find it very difficult to find employment in the growing sectors of our economy, due to issues of training, previous earning level and age.

*

And there are still more challenges to the rebound thesis, including those population numbers. According to the Census Bureau data, the Los Angeles five-county area had 529,000 out-migrants and 178,000 immigrants to yield that net loss. There were net losses in all age groups, and that raises the concern about a "brain drain" from the area. However, note the dates for this survey--March, 1993, to March, 1994. This was still viewed as a period of economic decline for the five-county area, and many relocation decisions were probably based on the idea that things were not going to get better any time soon. There are anecdotal reports that this out-migration, mainly to surrounding states, is rapidly trailing off. Most economic forecasts for these states call for lower rates of growth due to a decline in the inflow of businesses and people from California.

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