Features

Improved Californian economy likely in second half of year

By Simon Avery The Associated Press
Thursday June 20, 2002

LOS ANGELES — California continues to underperform the national economy, but a respected economic report released Wednesday forecasts that the state’s fortunes will improve in the second half of the year, as long as early signs of recovery in the technology sector continue. 

The state economy should get a boost from an increase in exports and a moderate amount of new hiring, according to the quarterly UCLA Anderson Forecast. 

But improvements will be gradual and minor, and Californians will suffer a larger decline in personal income this year than they did in 2001, the report said. 

After accounting for inflation, personal incomes will decline 1.6 percent this year, following a decline of 1.3 percent in 2001. That compares with a forecasted rise of 2.5 percent in personal income for the nation as a whole this year. 

“There’s no doubt, we’ve fallen behind,” said Tom Lieser, an economist and author of the California forecast. 

New hiring will remain “subdued” as employers wait to see improved sales and profitability, the report said. 

In the San Francisco Bay area, where 143,000 jobs disappeared between January 2001 and April, technology firms are still waiting for buying activity to restart before fattening their payrolls. But early signs of growing demand for chips and semiconductor equipment provide some optimism that Silicon Valley is on the path to recovery, Lieser said. 

Southern California has actually generated job growth, but not enough to compensate for the loses in the north. Overall, California lost about 33,000 jobs (0.2 percent of the labor force) in the 12 months ending in April. 

Statewide non-farm employment will rise by a meager 0.2 percent this year, followed by a gain of 2 percent in 2003, according to the UCLA Anderson Forecast. 

Even as job creation picks up, new entrants into the job market will keep the unemployment rate high. It will average 6.4 percent this year and dip to 6.3 percent in 2003 and 6.1 percent in 2004, the report said. 

The state government has been a major generator of jobs through the economic downturn, adding about 60,000 education positions since the end of 2000. But the massive state deficit remains “a major blot” on the economic landscape because it will restrain government spending plans, Lieser said. 

Californians’ declining personal incomes translate into less buying activity. 

Taxable sales adjusted for inflation decreased 4.1 percent last year and should fall another 2.2 percent this year. The drop-off bucks the national trend of consumer spending and occurred even as favorable financing fueled a mini-boom in sales of automobiles, home furnishing and appliances. 

The Legislative Analyst’s Office, which provides economic advice to the state Legislature, also forecasts an improvement in the third and fourth quarters. 

But Brad Williams, the organization’s chief economist, said he’s concerned that consumer demand may slacken and the economy won’t benefit from pent up demand that usually accompanies the beginning of an expansion. 

“It’s a bit of an iffy proposition,” Williams said. “We are betting that business will step up spending in the second half of the year.”