Share this story
Close X
Switch to Desktop Site

Economic Slump Strains California


THERE is trouble in ``paradise.'' California, already struggling to cope with dirty skies, rising crime, and congested freeways, is facing a new problem: a slowdown in its gazelle-quick economy.

While the Golden State may continue to outperform the country as a whole, the halcyon days of the 1980s - when the supply of new jobs seemed inexhaustible - are gone. Pink slips are surfacing at aerospace plants, and a growing number of new homes are sitting empty.

About these ads

A prolonged downturn could undermine the state's ability to absorb the thousands of new immigrants (both legal and illegal) that arrive each month and pose problems for politicians struggling to balance budgets.

``It is a slowdown,'' says David Hensley of the Business Forecasting Project at the University of California Los Angeles. ``I don't think we're in deep trouble at this point, but we are seeing troublesome news.''

Any downturn is noteworthy in a state that has long been the envy of others for its diverse manufacturing base and has seemed to exemplify, in addition to surf and sun, unlimited opportunity.

In 17 of the past 20 years the California economy has outperformed the nation as a whole. The 2.6 million jobs added in the past six years are more than Western Europe has created in a decade. The state's $700 billion economy is the world's sixth largest.

Cracks are beginning to appear, though. The state is less dependent on defense dollars than it once was, but it still feels the latest wave of Pentagon parsimony.

The state's aerospace sector has lost 7,000 jobs a year for the past four years. Recently the layoffs have accelerated: McDonnell Douglas Corporation said last month it would cut 3,000 jobs from its operation in Long Beach, and Lockheed Corporation announced last week it would move almost all of its aircraft production in Los Angeles County to Georgia, which could cost the area 4,500 jobs by the mid-1990s.

This reflects both consolidation and cost-cutting in the face of leaner Pentagon budgets and the high cost of living and doing business here. In recent years some aerospace companies have left southern California for other parts of the Sun Belt with lower wages, looser environmental rules, and commutes measured in something other than geologic time.

About these ads

``If you've got two plants and enough business to fill only one, you go to the cheaper of the two locations - and California is not it,'' says Michael Beltramo, a Los Angeles-based defense consultant.

Still, the aerospace industry is not moribund. Some companies have made new investments in operations, and Pentagon contracts are not nonexistent. Bookings for commercial aircraft may offset some of the defense cuts.

IF there are fewer missiles being built, there are also fewer houses being put up. The state's Tabasco-hot market of a couple years ago has cooled off, and prices for homes are coming down. To attract buyers, realtors in the San Fernando Valley, north of downtown, are serving prime rib at open houses.

There are exceptions. Real estate remains robust in Sacramento, and enough homes are being built in the Antelope Valley, 60 miles north of Los Angeles, that people are stealing dirt from construction sites. Dirt is in short supply in the area.

Pink slips have been common in Silicon Valley, where the semiconductor industry is in a slump and computer sales are soft. The state's $16 billion farm economy, though OK now, faces an uncertain future as California enters the fourth year of a drought.

``We are not immune to downturns,'' says Adrian Sanchez, regional economist with Security Pacific Corporation. ``We are going to have to become accustomed to it.''

Despite the gloom, California is not in danger of becoming a banana republic. Most economists expect at least 2.5 percent job growth over the next year - better than the national average. Retail sales are forecast to be above the US as a whole, too, and unemployment remains low.

``The good news is that, like Wagner's music, it is not as bad as it sounds,'' says Joseph Wahed, chief economist with Wells Fargo Bank.

The longer-term outlook is less certain. Economists Hensley and Sanchez say growth here could dip below the national rate in 1992-93.

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.