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1995-96 REVIEW AND OUTLOOK : Industry by Industry : Outlook

December 31, 1995

There may be clouds on the nation's economic horizon, but it should be mainly blue skies ahead for Southern California in 1996. Here is what key industries can expect:

* AEROSPACE: Yes, there's a future again in aerospace after years of painful cuts. Several defense and commercial programs that employ thousands in California are secure for at least 1996. They include the B-2 bomber, F/A-18 fighter and C-17 transport. Satellite construction will also remain strong.


* AGRICULTURE: Barring a replay of 1995's ferocious weather, which wrecked a number of orchards and fields, production of almonds, walnuts, grains, cotton, milk and grapes is bound to bounce back in 1996. But low inventories will tend to bolster prices, cheering farmers. The livestock industry will be trying to recover from a tough 1995, when rains produced grass and a bumper crop of beef cattle, forcing prices down. Cotton will probably fare well after being off 25% in 1995. December's rains helped allay drought fears, but weather remains the key wild card. Another: What will happen if Congress, as expected, reduces crop subsidies?


* AUTOS: After a disappointing 1995, auto makers expect car and truck sales to be flat in 1996. One reason: Small wage hikes are causing consumers to delay purchases and to balk at hefty new-car prices. Big Three profits will be squeezed by higher rebates and model-introduction costs. A big wild card is contract talks with the United Auto Workers.


* BANKS AND S&Ls: Although this was a record-breaking year for bank mergers, the consolidation movement could gain even more strength in 1996. The hottest action in the savings and loan industry may be in Washington, where Congress is expected to take action on sweeping bank reform legislation that should change--and perhaps eliminate--the legal lines that separate commercial banks from S&Ls.


* COMPUTERS: Sales of Microsoft Corp.'s Windows 95 failed to live up to the hype, and there are signs that hardware sales are beginning to slow down. That doesn't bode well for the semiconductor industry. Consolidation in the software industry will persist, with rumors that Novell Inc. and Borland International are on the selling block. Apple Computer also is the subject of takeover rumors.


* CONSUMER PRODUCTS: As new age beverages lose luster with consumers, marketers are expected to put extra muscle behind soft drinks. Root beer, anyone? Weak apparel sales in 1995 mean that prices aren't likely to rise much in 1996. More over-the-counter versions of prescription drugs are on the way.


* DRUGS & BIOTECH: Look for more partnerships between U.S. and foreign pharmaceutical companies and cash-hungry biotechnology companies. Drug makers will intensify their research into ways to effectively treat specific diseases, such as cancer or Alzheimer's, at the lowest-possible cost--a fast-growing field known as disease management.


* ENERGY: The outlook nationally is for slack to falling oil prices, due to a glut of supply worldwide. And low oil prices mean slim margins for producers. On the West Coast, however, the lifting of the Alaska Oil export ban will boost prices for California-produced crude anywhere from 50 cents to $2.50 a barrel when the law becomes effective in the spring. That will squeeze state refinery profit margins, though it's unclear how much of that price boost will find its way to the gasoline pump. But it's likely gasoline prices will rise a little--5 to 15 cents per gallon--as California Air Resources Board clean-air rules require a switch to cleaner-burning gasoline in June.


* GAMING: 1996 may be the year the gambling wave hits a breakwater. After several years of unrelenting expansion--some form of gambling is now legal in every state except Utah and Hawaii--the travails of casino gambling in New Orleans are bringing the assumption that casinos are an economic slam-dunk into question.


* HEALTH CARE: The health-care industry will continue its furious consolidation drive, as weaker companies fall by the wayside and the strongest companies merge and grow bigger. Expect more mergers among managed-health-care companies and more acquisitions by big for-profit hospital chains of financially struggling nonprofit hospitals. Doctors and hospitals will look for ways to deliver medical services directly to employers, bypassing the big insurers.


* INSURANCE: The insurance industry, which has undergone considerable consolidation in the past year, may see an even bigger merger-and-acquisition wave in 1996 as companies try to position themselves in an industry marked by overcapacity and brutal competition. California insurers will be focused on Sacramento, where Insurance Commissioner Chuck Quackenbush will be trying to implement his controversial plan to establish a statewide earthquake insurance authority.


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