Golden State Sees Hope Of Economic Recovery

Californians are upbeat about improvement, but wary of hints Clinton may move slowly

THE world's seventh-largest economy is looking for a jump-start from the Clinton administration. Though the Golden State is languishing deeper in recession than the rest of the nation, many think it may get one.

"There is already a business upturn we are calling the Clinton bounce," says Jack Kyser, chief economist for the Los Angeles Economic Development Corporation. Because of Clinton's stance on converting defense-related jobs to other applications, his focus on infrastructure improvement, and his ideas for moving high-tech products into commercial markets faster, Mr. Kyser says expectation is running high.

There is also the prospect of a stimulus package that could include lower interest rates - which would significantly aid the stalled real estate market - and $30 billion to $50 billion in federal outlays that may translate into anything from public-works projects to more grants-in-aid for state and local governments.

But President-elect Clinton has stated he may reevaluate the need for an immediate package because of recently revised figures for 1992's third-quarter growth in gross domestic product, up sharply to 3.9 percent from an estimated 2.7 percent. Such wavering has many in California concerned.

"During the next three to six months Clinton will be making choices that will determine short- and long-term prospects for California throughout the '90s," says Robert Arnold, chief economist for the Center for the Continuing Study of the California Economy (CCSCE). He counsels against letting recent upturns take the edge off pushes for economic stimulus.

"This state needs a very vigorous recovery to get back to the growth path we were on before 1990," he says. The growth rates that pulled the state out of recessions in 1971-72, 1975-76, and 1982-83 were between 5 and 6 percent, he says.

A recovery of 2 to 3 percent a year would keep the state well below its growth potential and not allow it to recover losses.

Since 1990, California has lost more than 750,000 jobs. Without recession, 1980s growth rates would have provided nearly 300,000 new jobs. Some estimates, then, argue that the state is missing over a million jobs.

Both the CCSCE and the business forecasting unit at the University of California, Los Angeles, view economic stimulation as essential for a return to the previous growth path.

Income, spending, and construction indicators across the state are all down for 1992. Though personal-income estimates show a 3.3 percent rise over a year ago, that advance has been largely wiped out by inflation.

Legislative analyst Elizabeth Hill has predicted the state's budget shortfall for next year at $7.5 billion. CCSCE statistics from May 1990 to September 1992 show why: Mining is down 10.5 percent; construction, 25 percent; manufacturing, 10.6 percent; trade, 6.7 percent; and financial/insurance/real estate, 5.1 percent.

Some brights spots do exist. These include the $7 billion tourist industry, which has rebounded significantly from fallout caused by earthquakes and the Los Angeles riots. International trade remains strong. And Hollywood has just rung up the most lucrative Thanksgiving weekend ever.

But because some of the downturned figures have yet to hit bottom, the UCLA forecasting unit is among several groups predicting continued recession through most of next year.

Much of what happens in California will depend on how, when, and if Clinton's ideas improve the nation as a whole. The Northeast is still falling in many of the same indicators. And together with California, the two regions generate 40 percent of the nation's output.

Some state economists say there is promise in Clinton's ideas but that it is inappropriate and probably too difficult to determine at this point how they will fall into place.

Clinton's promises of investment tax credits and increased taxes on the wealthy, for instance, cause some to see potential improvement for California. But pressure to accelerate the downsizing of defense, to pay for these and other ideas, could offset those gains.

No one knows how Clinton's public posturing on defense cuts compares to his private strategies for "gradual" reduction. For now, observers say the only California program to be hit hard under Clinton will be the space-based aspects of the Strategic Defense Initiative.

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