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California's economic slowdown

By Arthur GarciaSpecial to The Christian Science Monitor / March 31, 1981



San Francisco

Since it accounts for nearly one-eighth of the nation's output, there's no cause for surprise or concern that California's economy has been affected by the recession. The puzzle is the state's subpar performance during the past year of recession and recovery.

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"California could scarcely expect to escape the downturn without at least a marked slowing of growth, but what happened was something considerably more," Crocker Bank economist Ted Gibson says.

The gap between California and US growth rates for most broad measures of activity narrowed considerably in 1980, although the year-average figures generally show the state's economy continuing to outpace the nation.

"Comparisons for the most recent months, however, suggest that California's advantage has disappeared and, if anything, the state now is lagging slightly behind the nationwide pace," Mr. Gibson says.

"At the very least, California's extraordinary boom -- with employment growing almost twice as fast as the nation during the last half of the '70s -- lost some of its luster in 1980," he notes.

"The question is whether last year's sluggish performance was merely a temporary aberration or the beginning of a period in which economic growth will more closely approximate the national average," he adds.

Mr. Gibson sees a better year ahead than the one past, with the state moving toward full employment more quickly than the nation as a whole. But he rules out a return to the fast-growth track of the late 1970s unless restrictions to growth are quickly modified or removed.

"If the thrust of past public policy in California has been to reduce growth, it may be succeeding," he says.

Because of bright long-range prospects for the state's aerospace and electronics industries, which together account for 30 percent of its manufacturing jobs. California has the potential to again be ranked among the leading growth areas of the nation.

"But the key issue is whether the promised growth will occur within the state's borders," Mr. Gibson comments, citing the combination of costly, scarce housing, and restrictive policies concerning energy, environment, and transportation that force local companies to expand outside the state.

Crocker's 1981 outlook concludes that both the state's manufacturing and agriculture should gain by an increase in international trade expected in the last six months of the year as spending by Pacific Basin nations picks up.

California's electronics industry may suffer a short, mild setback and a few months of stagnant employment and output but should re-emerge as the nation's leading growth industry.

The state's aerospace industry will benefit from the continued rise in defense spending, which Crocker predicts will escalate in the next few years, and the commercial airlines' need to reequip with fuel-efficient aircraft.

Agriculture looks positive, with 1981 bringing gains of 8 to 10 percent in gross marketings to about $14.5 billion, and prospects of lower production costs if fuel and chemical prices stay stable and interest rates decline during the year.

Employment in the state's private services should increase more than 3 percent during the year, yet job growth will be short of the annual 5 to 6 percent common in the late 1970s.

The travel and tourist industry faces a bumpy road to recovery, hampered by last year's airline ticket prices and a slowdown in foreign tourist growth.