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The Economy

More pain forecast for California

Sluggishness in key industries will extend a rise in unemployment and

July 22, 2009|Alana Semuels

Unemployment in California and Los Angeles County will increase well into 2010, continuing to exceed the highest levels since at least the end of World War II, according to a local economist whose projections for the Southland economy are among the most negative to date.

Continued sluggishness in key industries such as construction, retail, international trade and hospitality will keep the state from a full recovery until 2011, said the report, released by the Kyser Center for Economic Research at the Los Angeles County Economic Development Corp.

Personal income will drop 2% in the state this year, the report said, the first annual decline since 1938.

"Most people haven't experienced anything like this in their lifetimes," said Jack Kyser, founding economist of the Kyser Center.

California's jobless rate, which was 11.6% in June, will average 12.6% next year, according to Kyser, who also projected that Los Angeles County's unemployment rate will be even higher, averaging 12.8% in 2010. The county's jobless rate was 11.3% last month.

Home construction will continue to fall, and the commercial real estate market will go through more distress as vacancies climb, the report predicts. As a result, it says, Los Angeles County will lose 168,000 jobs this year, led by the manufacturing sector, which is projected to shed 38,800 positions.

Some areas outside Los Angeles County are expected to fare even worse.

In San Bernardino and Riverside counties, where unemployment already tops 13%, the jobless rate will climb next year to an average of 14.7%, the forecast said.

"The Inland Empire will experience a longer and deeper recession than the rest of Southern California," the report said. Escalating foreclosures and falling home values have created the region's "worst-ever economic crisis."

The Inland Empire has lost 80,000 jobs in the last year alone, battered by the slowdown in international trade. The region is a major distribution hub for companies that move goods from the ports of Los Angeles and Long Beach to the rest of the country.

Even quiet Ventura County is in for a rough ride, pulled down by layoffs at corporate giants Countrywide Financial and Amgen. The county will shed 5.1% of its jobs in 2009, pushing average unemployment for 2010 to 10.3%, the forecast said. Ventura posted a jobless rate of 10.2% last month, up from 5.9% in June 2008.

"Whatever the problem seems to be these days, Ventura County has more of it," the report said.

The Kyser Center report may be a little too glum, said Esmael Adibi, an economist at Chapman University in Orange.

"To me, it looks very pessimistic," Adibi said. Kyser predicts the state will lose 694,000 jobs this year, but Adibi's figure is 37% lower, at 437,000 jobs lost.

Monday's resolution of the state's budget crisis is more reason to be optimistic about the future, Adibi said, especially because the governor didn't raise taxes. The psychological effect of the agreement shouldn't be underestimated, he said. What's more, federal stimulus money will buffer some of the cuts in education and transportation.

"A big puzzle today got solved, and that's good news," he said.

Kyser did not agree that the budget fix would help matters. Losses in revenue will continue to dog municipalities throughout the state, he said, potentially even pushing some into bankruptcy. Budget cuts will make it even more difficult to create jobs.

"The news from Sacramento is going to create more problems next year," he said. "It could even get worse."

The Kyser Center forecast also measures the health of key economic drivers in Southern California, including aerospace, trade and motion picture production.

Some of the key drivers are in danger of shrinking permanently, Kyser said. Aerospace could shrivel if the Defense Department cuts funding for Boeing's C-17 cargo aircraft program and commercial air travel continues to lag. As international trade stays slow, ports in Canada and Texas and on the East Coast will try to lure business from Los Angeles. Production in the motion picture industry is increasingly taking place out of state, and cutbacks in advertising are hurting the broadcast TV industry.

Perhaps hardest hit is apparel and textile manufacturing, once a key regional driver. In Los Angeles County the industry will shrink 14% between 2008 and 2010, shedding 13,300 jobs, the report said.

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alana.semuels@latimes.com

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