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Job, Income Forecast for State Upgraded

Economy: UCLA study predicts 3.4% expansion of employment, exceeding previous rosy projection.

June 24, 1998|DON LEE | TIMES STAFF WRITER

Despite the worsening Asian crisis and constraints in the national economy, UCLA forecasters upgraded their outlook for California, projecting that job and income growth this year will actually surpass the superb performance in 1997.

In its mid-year report released today, the UCLA-Anderson Forecast Project predicts California's nonfarm employment will increase at a robust rate of 3.4% this year--a tenth of a percent higher than last year and nearly a full percent better than the projected national growth rate. If that holds, the state will create about 442,000 new payroll jobs this year--10,000 more than what UCLA analysts calculated in the first quarter.

The university's latest edition of its widely followed forecast is more optimistic than most others. But the UCLA economists say they based their revisions on stronger-than-expected growth nationally and in California during the first five months of this year. Their projections also are modeled on historical trends.

Through May, job gains statewide ran at a surprisingly strong rate of 3.6%, with Southern California finally reaching parity with its northern neighbor in terms of growth, although not entirely in the quality of those new jobs.

"Particularly heartening to us is the strong expansion in Southern California, which is now growing apace with the San Francisco Bay Area," wrote Tom Lieser, who prepared UCLA's California report. In fact, he says, Los Angeles County this year has been running ahead of the San Francisco metro area, and the Inland Empire--Riverside and San Bernardino counties--has supplanted San Jose as the fastest job growth area. Nevertheless, Northern California is still creating proportionately more high-tech and other generally higher-paying jobs.

Lieser's statewide forecast also calls for a 7.5% increase in personal income this year, compared with 7.3% last year, and for a 6.5% gain in retail sales, slightly ahead of last year. Longer range, he expects California's job growth to slow noticeably in 1999 and 2000, to a rate of 2.5% in both years.

As forecasts go, UCLA's was generally on the high end of eight private and public sector forecasts, which on average put the state's job growth this year at 3.1%. The other forecasts, which include those from Bank of America, the Los Angeles Economic Development Corp. and Chapman University, generally see a bigger fallout from Asia and slower growth for the United States.

Still, Ted Gibson, chief economist at California's Department of Finance, said of UCLA's projections: "What they got is certainly achievable." Gibson also has been struck by the accelerating employment activity so far this year, and he expects the state economy to get a second wind from the nascent construction boom. Poor weather held back home building early this year, prompting UCLA to lower its expectations for residential building permits, to 126,000 this year. That is low given projections that the state will form nearly 200,000 new households this year.

A housing buildup is certain to help as Asia's financial crisis further constrains growth in high-tech manufacturing, tourism and other sectors of California's economy. UCLA analysts, however, seemed less worried about Asia than they did earlier this year, even though the situation has worsened in Japan and South Korea, two of California's leading export markets.

UCLA's Lieser pointed out that the state's strong exports to Mexico, Europe, Australia and Taiwan in the first quarter more than covered the loss of shipments to other Asian countries. "In sum, there is enough good news for now to offset the weakness in major Asian nations," he said.

For the nation, UCLA economists Larry J. Kimbell and Rajeev Dhawan now predict the total value of output of goods and services will grow by 3.5% this year, compared with the previous forecast of 3.2%.

But signs of a slowdown are increasing. They predict the U.S. gross domestic product will slow markedly, to a growth rate of 2% in 1999 and 2000, partly because of Asia but also because of several other factors, including the limited pool of workers, rising inflation, excessive inventories and a slowdown in equipment investment. As a result, UCLA economists now expect the Federal Reserve Board to start making a move to raise the key interest rate late this year.

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