Slump-resistant California expects continued gains
The United States economy has been off to a rocky start in the 1980s, with two recessions in the past 30 months and a national jobless rate at a 40-year high. The utilization of industrial capacity is equal to the low in the 1973-75 slump, and production and sales in basic industries are among the lowest of the past 35 years.
Through all the gloom, though, California has fared better than the rest of the nation, with employment and income sharply outperforming the national rate of change. Still, the state has been far from immune to the effects of the recent - and, some argue, continuing - recessions, economists at several California banks note.
Payroll employment, for example, up 7 percent as recently as 1978, grew less than 2 percent annually over the past two years and recent months have seen a steady decline in the number of job-holders. Even if a recovery gets under way in this year's second half, employment in 1982 could register the first annual decline in more than a decade.
So what do these economists see as the outlook for California over the near term and the next five years? What are prospects for the nation's biggest state economy, representing more than 10 percent of the country's population, nonfarm employment, personal income, per capita income, retail sales, and value-added manufacturing?
Despite some serious problems, ''there are ample grounds for optimism regarding California's prospects in the years ahead,'' says Ted Gibson, vice-president and senior economist at Crocker Bank. ''The state's broad economic base, its leadership in high-technology manufacturing, its diversified agriculture, and large private services sector will continue to underwrite an above-average economic performance in the 1980s.''
But Mr. Gibson adds that the road to recovery isn't likely to be smooth for either California or the nation. He cautions that a replay of the state's late 1970s boom is ''a remote possibility at best.''
He looks for employment growth in the state to average 3.2 percent annually over the next five years, a healthy gain above the projected 2.5 percent national rate of increase. Gibson sees personal income slowing to a 10.5 percent rate of increase, down from just over 13 percent in the previous five-year stretch.
Much of California's high-technology industry is devoted to capital goods - computers, instruments, and commercial and general-aviation aircraft. Gibson forecasts that high interest rates will hold down demand for those goods over the next two years. Similarly, housing and construction-related manufacturing will also be hurt by the conflicting policy strategies of the Reagan administration and the Federal Reserve Board to contain inflation.
''At the same time, however, the emphasis on defense spending contained in the federal budget - real outlays seem destined to rise 5 to 7 percent annually over the next five years - will help to offset some of the adverse effects of the policy mix on California in the next year or two,'' Mr. Gibson says.
The two high-tech sectors, aerospace and electronics, will continue to be the main sources of growth of basic income in California. While the electronics industry has recorded higher growth in recent years, aerospace will probably overtake it. Gibson predicts that California will continue receiving its historical 18 to 20 percent share of spending for defense equipment over the next five years.
The California Department of Economic and Business Development reports that President Reagan's plans for stepped-up defense spending could add about 110,000 new aerospace jobs in the state by 1986 - even if California companies hold only their current share of the market.
If they grab a bigger share, as seems likely, the defense buildup could add as many as 135,000 new jobs to the state's economy. This reflects only the direct impact on prime contractors and subcontractors in the aerospace-manufacturing sector.
Taken alone, a pickup of 135,000 jobs in defense-related programs would raise industry employment over the 1981-86 span to 769,000, Yvonne Levy, an economist with the Federal Reserve Bank of San Francisco, says. That represents a 4 percent annual rate of growth, or 21 percent for the entire five-year period.
Manufacturing is one of California's largest and most important industries, employing nearly 2 million workers, or 20 percent of the state's total work force. The current recession, says Joseph Wahed, vice-president and chief economist at Wells Fargo Bank, has not affected manufacturing as badly as might be expected.
''The reason is simply that 1 out of every 3 manufacturing workers in the state is directly or indirectly tied to defense markets, which have been growing sharply,'' he points out. The strong buildup in defense spending has been gathering speed. California companies received nearly $12 billion worth of defense contracts in the first half of 1982, a healthy increase of 43 percent from the comparable period last year.
While California's high-technology industries will lead the way to expected recovery, short-term problems remain on the state's job front. Just over 25 percent of its 46 leading industries have added workers in the first six months of this year. No rapid improvement is expected over the next few months, says Mario Menchini, an assistant vice-president in Security Pacific National Bank's research department.
''The recession-induced employment downswing may be close to bottoming out, but a real turnaround probably won't take place until later this summer or after Labor Day,'' he says. ''That's assuming the economy begins to improve.''