California: Another View of the Recession

IN direct refutation of several national and local media reports prophesying long-term gloom and doom for the California economy, a private research firm has released compelling evidence tying the state's recent downturn to normal recessionary cycles."There is a gross misunderstanding that job losses are the result of firms moving out of the state and a collapse of the state's competitive strength," concludes a 1991 economic update by the Center for the Continuing Study of the California Economy. "Yet, little or no hard evidence exists to substantiate this charge. A far more plausible explanation is that the state's economic woes are caused nearly entirely by the national recession, which has been deeper and longer than expected." Though some conclusions are being challenged by other state economists, the report has not been dismissed as mere advocacy research designed to forward competing policy agendas. "They are correct in exposing our lack of good data on the magnitude of business flight," says David Hensley, director of the Business Forecasting Project at the University of California at Los Angeles. Because the state has been hit by citrus-damaging frost, long-term drought, and defense layoffs in addition to recession, "it is very difficult to disentangle all these impacts and gauge the long term," he says. "This report will drive another schism between those lining up pro and con about California," says Joel Kotkin, senior fellow for the Center for the New West. "It highlights those parts of the equation that are hard to measure." Entitled "Climate of Confusion," the report laments a "climate of fear" developing over California investment from other states and countries. Admitting that all major indicators - jobs, income, retail spending, and construction - are sharply down over last year, the report highlights how trends are not unusual compared to the nation as a whole, or the state in past recessions. Construction jobs, for instance, have fallen 21 percent from a March 1990 peak. In the 1973-75 recession, the drop was 28 percent. In 1981-82, the drop was 24 percent. Current manufacturing job drops of 7.4 percent compare to an 8.5 percent decline in 1973-75 and an 8.0 percent drop in the 1981-82 recession. Even with major losses in California's manufacturing sector - exacerbated by history-making, post-cold-war defense cuts defense-spending cuts are not causing the California recession nor are they even a significant influence," the report says. While such jobs have dropped every year since 1987, total California job growth outpaced the nation each year. The state's 1991 figures are only slightly more than the national job-loss rate - and with coming revisions may be almost indistinguishable. The report also cites several reasons for optimism. In a recent Fortune magazine study listing the nation's 100 fastest-growing companies, 33 were located in California. Texas was second with 10. Nevada, Utah, and Arizona, all states currently raiding California for new businesses, had none. "This study is consistent with our recent surveys," says Tom Link, president and publisher of the Los Angeles Business Journal. "It's not that California's problems aren't massive, but that the full story doesn't always get told." Advising caution to state policymakers and business leaders, the report makes several conclusions: * "Once the recession is over, the outlook for growth in the rest of the 1990s in numbers - jobs, population, housing - remains strong. National and global trends in high tech and trade favor California." * "Prosperity and quality of life, not numerical growth, are California's principal challenge, and meeting this challenge will require bold actions." * "It is clear that California's residential building recovery has been postponed until 1992." But, "postponed is different from canceled." * Population "growth remains strong. Two years of slow residential building have reduced inventory levels. Mortgage rates have dropped below 9 percent, lower than anytime in the 1980s. Price levels have remained steady for two years."