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First Rays of Light in California Economy

Gains in retail and home sales, ending of drought, have economists starting to perk up. US ECONOMY

SEVERAL top California economists are seeing the humble beginnings of recovery from the longest and most severe recession in the state since the 1930s.

Bolstered by the sharpest month-long gain in single-family home sales in five years, a two-month surge in retail sales, and the declared end-of-drought in several communities, the number of experts predicting modest economic upturn is increasing - some saying as early as this summer.

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"The hints are there that we might finally be on the mend," says David Hensley, director of the University of California Business Forecasting Unit.

Job losses in government, banking, and aerospace will continue to register significant hits to state employment rolls. But there are upward blips in tourism and entertainment after several seasons of stagnation. International trade is creating new categories of demand from warehousemen to truckers and trade-related workers. A whittling down of installment debt has reduced the state's debt-to-income ratio to its lowest level since 1985. That means more consumers with confidence to spend. Pent-up demand released

In his quarterly report released yesterday, Mr. Hensley said modest growth in the national economy, primarily the cumulative effects of lower interest rates over the past 18 months, signaled the release of pent-up demand that will have ripple effects in the nation's largest, most economically diverse state.

But he stopped short of saying California "might piggyback the US and begin to recover [as early as] spring. Our view is that such optimism is premature."

Because real estate sales have a domino effect on both jobs and healthier bank loan portfolios, improved house sales are seen as a major key to a state economic upturn. Sales of single-family homes rose 13 percent in February, the sharpest one-month gain since December 1986.

"California's housing market continued on the road to recovery during February," said California Association of Realtors president Chuck Lamb. "Virtually every region of the state posted significant sales increases compared with a year ago."

Stung by earlier predictions of recovery that were thwarted by the Persian Gulf war one year ago, other economists are guarded in their optimism.

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"There is finally some life, but it is not going to be vigorous," says Jack Kyser, chief economist for the Los Angeles Economic Development Corporation. He ticks off the post-cold-war downsizing of defense budgets, bank consolidations, and government hiring freezes due to budget woes as major hurdles the state has yet to contend with. But he cites the proliferation of buyers for distressed real estate as significant evidence that the economy is about to rebound. Aerospace losses

Ted Gibson, principal economist for the State Office of Finance, says overall tax revenues are way below 1991 forecasts but that withholding tax figures - one indicator directly related to employment - are increasing. "If that does not indicate recovery, it at least shows a bottoming out," Mr. Gibson says.

Gibson also feels aerospace declines will be no worse than the post-Vietnam era in the early 1970s, absorbed more easily in an economy "twice as big as it was then." The UCLA study forecasts a loss of 28,000 aerospace jobs in 1992, an 8.7 percent drop. Declines of 6.1 percent and 5.5 are predicted for 1993 and 1994.

The industry will shrink, but by the end of the year, "the worst will be behind us," says Gibson.

Part of what has undermined California recovery, several economists say, is loss of consumer confidence exacerbated by misleading media accounts. Figures in a major study released last week, projecting between 210,000 and 420,000 aerospace jobs lost here by 1995, received dramatic headlines before being later discredited. The report's authors - the Los Angeles County Aerospace Task Force - were accused of trying to lay the groundwork for government bailouts.

"That report was the highwater mark of hysterics," says Joel Kotkin, senior fellow for the Denver Center for the New West. "It was a case of the negative feeding on the negative." Mr. Kotkin sees three reasons for optimism: legislative bills seeking to reform the state's costly worker-compensation laws, cited as a key reason for business flight; a state EPA streamlining its permit process; and an innovative, new smog-exchange plan which will ease the costly and bureaucratic nightmare of current regulatio ns. Drought easing

Heavy March rains are also giving the state a psychological boost. Though reservoirs in the north still remain at low levels, several communities - Santa Barbara and Ventura among them - have declared the six-year drought over.

Beyond satisfying needs of urban and agricultural users, the new rains have brought an easing of restrictions for new housing hookups.

"Less-restricted water will be a boon to several industries," notes Hensley. "Not worrying about water hookups is a major key to getting real estate moving."

A final reason for optimism, several experts note, is forecasts of significantly more visitors to the state's many theme parks, hard hit during last year's Gulf crisis.

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