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Southern California's vital signs are improving

Data suggest that an economic recovery has begun in the region. But the state's picture isn't all bright.

September 16, 2009|Alana Semuels and Ronald D. White

Signs are increasing that an economic turnaround has begun in Southern California, even as residents and businesses continue to struggle in the worst downturn in decades.

The state's exports are growing as overseas consumers, especially those in Asia, are demanding computers, electronics and agricultural products from California. Tourists are starting to return to the region's hotels and beaches. And home prices appear to be stabilizing in some of the Southland's hardest-hit markets.

"All of the indicators are that the recession is over with, even in California," said Jerry Nickelsburg, senior economist at the UCLA Anderson Forecast.

UCLA's quarterly regional forecast, scheduled to be released today, comes amid rising optimism among economists nationwide. Federal Reserve Chairman Ben S. Bernanke said Tuesday that the nation had probably exited its worst downturn since the 1930s and that the economy was probably expanding once again.

"From a technical perspective, the recession is very likely over at this point," he said in remarks at the Brookings Institution, a Washington think tank.

In California, a new report by Comerica Bank showed positive trends in the state's economy in July, for a fourth straight month. Cal State Fullerton says its indicator for Southland economic growth was positive last month for the first time in nine quarters.

Economists are also optimistic about California's long-term prospects in areas such as green technology, medical research and international trade. In the short term, however, its rebound could lag behind the national recovery.

The state's unemployment rate reached 11.9% in July, well above the national rate of 9.4%. Joblessness in California will continue to rise through the end of 2009, peaking in the fourth quarter at 12.2%, according to UCLA economists, who predict that job growth won't resume until late 2010.

The state's budget woes also will be a major drag. California is spending less on healthcare, education and prisons. It's cutting jobs and furloughing workers. That means less money to stimulate the economy.

The state's recovery will also be hindered by its historic reliance on the housing industry, which created tens of thousands of jobs in construction and financial services during the boom. Now many of those positions have vanished.

Construction employment fell by a third to 633,100 in July from its high of 948,500 in February 2006. The financial services sector, which includes real estate finance, shed 138,600 jobs over the same time period.

"Everything is exacerbated here because we were so dependent on housing," said Esmael Adibi, an economist at Chapman University.

That has affected people such as La Quinta mortgage broker VJ Sleight. She has weathered the ups and downs of the California real estate market for 20 years. But the recent collapse was so severe that she decided to walk away from the business for good.

"I don't think anybody expected it would be as bad as it was," Sleight said.

Southern California also suffered an outsized blow when the recession turned global, infecting economies and trade worldwide. Container traffic plummeted at the ports of Los Angeles and Long Beach, which handle more than 40% of the nation's container cargo. The value of trade through those ports dropped to an estimated $282 billion this year from $356 billion in 2007, according to the Los Angeles County Economic Development Corp. More than 20,000 longshore workers, truckers and warehouse workers have been idled.

Global factors, though, might now benefit Southern California. Recovering economies in Europe and Asia should help resuscitate the California companies that make parts for high-tech equipment. They should also return some jobs to hard-hit Riverside and San Bernardino counties, which had been the nation's second-largest and fastest-growing warehouse and distribution center.

"Just as we were hurt by the world downturn, we're going to be helped by things outside our borders," said Stephen Levy, director of the Center for Continuing Study of the California Economy.

Howard Wallace, president of the Los Angeles Harbor Grain Terminal, which is in Long Beach, is feeling the uptick in global trade. His business, which ships U.S. soybeans, corn and other grains to buyers overseas, nearly ground to a halt in December.

Now some new Middle Eastern clients are buying grain from him. And customers in China have begun ordering beet pulp as animal feed. Wallace's business is up 30% to 40% since March. He has doubled his workforce to about 40 people.

"We've been waiting for the other shoe to drop, but it has just kept going," Wallace said.

A rebound in foreign markets could also drive tourism, a key industry in the region. In June, tourism surpassed international trade as Los Angeles County's top job generator, according to an analysis by the L.A. County Economic Development Corp.

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