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1996-97: REVIEW AND OUTLOOK

California's job growth surged in 1996 and is headed higher next year, analysts say. The big question now: Is the state's economy really. . . : Ready to Fly? : Tech, Trade and Movies Main Engines

December 29, 1996|DON LEE | TIMES STAFF WRITER

Three years after starting to crawl out of recession, California is heading into 1997 in the best economic shape of this decade.

Job growth in 1996 ran at a robust 2.7%, spurred by entertainment, high-tech manufacturing and international trade, the new pillars of California's economy. UCLA economists predict the state will do even better in 1997, outstripping the nation for the second straight year.

Business executives are more confident than ever, as are consumers, whose rising incomes are boosting sales of new cars and home appliances. The state is flowing with tourists and once again attracting companies and outside investment. Aerospace is no longer the drain it once was. And finally, the stubbornly depressed housing market in Southern California appears poised for improvement.

"We could see California running on all six cylinders for the first time since the '80s," said Mark Zandi, chief economist at Regional Financial Associates in West Chester, Pa.

Though there are some qualifiers, the optimism is palpable throughout the state.

Peek at the project calendar in Technifex Inc., a special effects firm in Valencia that only three years ago was a hairline from bankruptcy:

Early next year, the 43-employee company will begin work on a water effects attraction for an Orlando theme park, dazzling lights for a Las Vegas hotel, visual illusions for a fun center in south Korea, and animated monsters for a haunted house in Japan.

"We've signed contracts that will take us through 1998," beams President Monty Lunde, a former special effects designer at Disney who broke out on his own with another Disney alumnus, Rock Hall.

The fortunes of firms such as Technifex speak volumes about how the state has regained its luster--largely on the strength of industries such as entertainment.

Motion pictures, the main component of entertainment, have added about 120,000 jobs in Los Angeles County since 1990. That's almost as many as the total number of aerospace layoffs in the county in the 1990s, according to Jack Kyser of the Economic Development Corp. of Los Angeles.

"The entertainment industry has several more years of good, solid growth," Kyser said, adding that the only constraints are shortages of sound stages and skilled labor.

The state's other economic engine is high technology: semiconductors, computers, software and multimedia produced in Silicon Valley; medical instruments and computer peripherals in Orange County; and biotechnology and telecommunications in San Diego.

Tom Lieser, associate director of the UCLA Business Forecast Project, estimates that California's electronics industry will grow by 7.8% in 1996. Next year won't be so hot, he says, but electronics jobs should still rise by a robust 2.9%.

Datum Inc., an Irvine maker of timing devices for the telecommunications industry, plans to add 100 manufacturing and administration staff members over the next two years. And what will support that growth? Foreign sales, says Datum Chief Executive Louis B. Horwitz.

"At one time, nobody talked about anything but Japan," Horwitz said. "But China, South Korea, Taiwan, the Philippines and Malaysia are all very, very large customers of American products. And being on the West Coast gives us a tremendous advantage."

Horwitz expects foreign shipments to account for 15% of his firm's $90 million in revenue this year. To boost that share to 20% in 1997 and 25% in 1998, Datum last spring formed an overseas sales department, which has a staff of four. "Growth in international sales will be one of our major opportunities for expansion," he said.

Datum is one of the many businesses that have helped California become a major exporter, notably to the rest of the Pacific Rim.

Exports from California grew by 19% in 1995, to $97 billion, and rose 13.5% in the first half of 1996. Japan's improving economy, the devaluation of the Mexican peso and recent decisions to abolish or lower tariffs on computers and certain agricultural products and to provide copyright protections for software makers should all support California's trade-related activity.

"Small to medium-sized companies are becoming more actively involved in exports than two years ago," said Ralph Clumeck, a former Security Pacific Bank executive who runs an export consulting business in Laguna Niguel. "The expectations for '97 are extremely bright."

But there are some patches of clouds.

The state's jobless rate--6.9%--remains 1.5 percentage points above the national figure. Though this gap will continue to narrow next year, analysts don't see California catching up completely until after 1999--a reflection of how far the state fell during the recession and of the continuing wave of immigration to the state.

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