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Region's Economy on 2 Tracks: One Stalled, One Moving Along

Retail, building and health-care sectors will propel growth, but entertainment and travel sectors lag, UCLA forecasters say.

March 12, 2003|Jerry Hirsch | Times Staff Writer

Southern California's economy has a split personality.

One is gregarious. It likes out-of-town guests, selling goods to foreigners, dining, music and entertainment. But it's in the doldrums, depressed by geopolitical tensions and anemic national and global economies.

The other looks inward, concerned about local merchants, health-care services and home sales. This economy is holding up much better -- and, according to UCLA's latest forecast, is set to propel fairly healthy job growth in the region in the next two years.

Because of that, "I am completely bullish on the Southern California economy," said Christopher Thornberg, an economist with the UCLA Anderson Forecast.

For The Record
Los Angeles Times Thursday March 13, 2003 Home Edition Main News Part A Page 2 National Desk 2 inches; 80 words Type of Material: Correction
State economic forecast -- A photograph of a sparsely attended Disney's California Adventure that accompanied an article about the state economy in Wednesday's Business section was taken in January 2001, several weeks before the park officially opened and before the Sept. 11 terrorist attacks. It did not accurately reflect a point made in the article, that California's tourism industry has suffered since the terrorist attacks. In addition, neither Walt Disney Co. nor the Disney park was mentioned in the article.

In their quarterly outlook, being released today, UCLA economists say Los Angeles County is likely to add 50,000 jobs in 2003, a 1% increase that probably will take place mostly in the second half of the year. And next year, job growth could be almost double, at 90,000.

With neighboring counties expected to contribute many additional jobs, Southern California could enjoy a significant rebound before the economy recovers in much of the nation as a whole, and certainly before it does in Northern California, which Thornberg said "remains a disaster."

Home sales and prices in Southern California have been extremely strong in recent years, and the UCLA forecasters say both will hold up well throughout 2003. As for taxable sales, a key measure of the health of the retail sector, they should gain steam as jobs are created and personal incomes grow. Among the sectors in which UCLA sees strong job gains: finance and services, including health care.

What's putting the brakes on Southern California, according to Thornberg and others, are for the most part external factors, such as the sluggish U.S. economy.

That's evident in domestic travel activity at Los Angeles International Airport, which is seeing 500,000 fewer passengers a month than it did before the Sept. 11 terrorist attacks.

Thornberg also noted that the volume of products moving in and out of Southern California ports and airports "has fallen by almost a third as the demand for U.S. goods overseas continues to slide."

But Guy Fox, executive vice president of Global Transportation Services, an international air and ocean freight forwarder in Redondo Beach, said he's starting to see an uptick in business, particularly with exports to Asia, which are at least 10% higher than last year at this time. Fox cautioned, however, that war in Iraq would throw "everything out of whack." That, he said, would have "a domino effect on business."

Northern California is much worse off than the southern part of the state, and the north's prospects don't look too bright, according to UCLA. A recovery in its sagging high-technology sector isn't expected to take place until well into 2004. And in the view of UCLA economists, the Bay Area's slump remains one of the biggest threats to the economic health of Southern California because of the commercial links between the two regions.

UCLA economist Tom Lieser said a plunge in state income tax receipts in Northern California is the reason for most of the state budget gap. The Bay Area, he noted in the quarterly report, lost 317,000 jobs from December 2000 to 2002 -- 10% of its employment.

The depth of the recession in Northern California could aggravate the state's severe budget problems by resulting in lower tax revenues than forecast. Gov. Gray Davis has estimated the state budget shortfall through June 2004 at as much as $34.6 billion. Lieser said the deficit could reduce California's economic growth rate for several years.

In Lieser's view, short-term solutions to the budget crisis should focus on spending cuts that don't affect employment levels and on tax increases that don't substantially affect discretionary spending.

The deficit "is going to pinch all of us a little bit, but this won't be the difference between expansion and recession," Lieser said. "What it will do is take the edge off the expansion."

A modest expansion is on the horizon. Statewide, according to UCLA, nonfarm payroll employment should grow by 0.7% this year and 2.2% in 2004. The Golden State's unemployment rate probably will average 6.7% this year and then dip to 6.4% next year, remaining slightly higher than the U.S. average.

Exports could start to increase in the second half of this year, giving a boost to wholesale and distribution job growth. And as employment grows, personal income should start to turn up, climbing by 3% this year and then to what Lieser characterized as "a more normal" 5.3% next year. That could lead to a 3.8% jump in taxable sales this year and a 5.8% increase in 2004.

However, the high price of gasoline could crimp overall spending and hurt taxable sales. Lieser figures that each 10-cent increase in the price of a gallon adds $100 to the fuel bill of a typical California household. By that calculation, in the first two months of this year, the average California family saw its gasoline bill climb by $480 on an annualized basis. If gas prices don't come down, Lieser said, they will put a "serious dent" in consumer spending, which is a critical economic driver.

*

Times staff writer Jeffrey Rabin contributed to this report.

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