California Economy Starts To Pull Out of Slump

Consumer confidence may be rebounding after years of malaise

THE California economy, sullen for most of the 1990s, appears to be turning around after its worst slump in 60 years.

The uptick is good news for a state with a sequoia-sized jobless rate as well as the country as a whole. A rebound in California, which represents 13 percent of the United States economy, could help stimulate a national recovery - or at least stop retarding it.

A turnaround would also hold important political ramifications -

affecting everything from the governor's race to how much money the Golden State can continue to wheedle out of Uncle Sam.

``It looks like the state is turning the corner,'' says Lynn Reaser, chief economist for First Interstate Bancorp here. ``The signs are beginning to look more positive.''

The latest evidence that there may be some life in the Golden State comes from the respected Business Forecasting Project at the University of California Los Angeles (UCLA).

In an analysis released Wednesday, the group cites several signs of vitality:

* The state added 7,300 payroll jobs in January and nearly 16,000 in February - the first consecutive two-month gain since mid-1990.

* Existing home sales recently hit their highest level in almost four years.

* Business failures, as tracked by Dun & Bradstreet, declined 23 percent in January over the same period a year ago.

While the recovery remains uneven, and no one envisions a return to the boom-boom days of the 1980s, the economy nevertheless appears to be improving for the first time in four years. UCLA forecasters have even moved up their prediction of a rebound from the second half of 1994 to the first half.

``This is the happiest forecast we have put out in many months,'' the report concludes.

National upturn helps

Behind the turnaround is the upturn in the US economy. California is inextricably tied to the national economy, and the effect of low interest rates, business expansion, and other forces is finally pulling the Golden State along.

The state has lagged in its recovery up to this point in part because of the depth of the downturn in the defense sector, as well as overbuilding in the commercial and residential real estate markets in the late 1980s.

There are internal reasons for the turnaround as well. The infusion of $14 billion in public and private relief assistance in the wake of the Northridge earthquake is boosting construction and the sale of everything from couches to curtains.

UCLA economists estimate the post-quake activity will generate 20,000 jobs over the next year, most of them in Los Angeles. Even so, the forecasters contend the quake will have a ``small but negative'' long-term impact because some businesses will decide not to locate here due to the earthquake risk.

Others point to an improved business climate, a rally in retail sales, and lower home prices - and thus more home sales - as contributors to the upturn.

``I think California has partly done it the old-fashioned way: It has pulled itself up by the bootstraps,'' says David Hensley, a regional economist at Salomon Bros. in New York.

Still, no one expects the economy to break out into much more than a dogtrot. The state's jobless rate, hovering around 9 percent, will likely remain above the national average. Growth will be well below the pace of the 1980s, when 30,000 jobs a month were being created. Nor will it be easy to make up for the 600,000 to 800,000 jobs lost during the recent downturn.

``We're just barely getting around the corner,'' says Larry Kimbell, director of the Forecasting Project. ``But it is better to be growing slowly than falling rapidly.''

The aerospace industry will continue to shed workers - as many as 80,000 over the next several years, according to the UCLA economists.

But that is still far fewer than it has been losing. Employment will rise in such areas as tourism, recreation, and international trade.

Psychological boost

Any uplift in the economy is welcome news in a state that many thought would never get up off the mat. Riots, fires, earthquakes, and droughts have added to the state's malaise.

In that sense, one of the biggest impacts of an upturn may be psychological. There are signs that some confidence is returning: A Conference Board report this week showed that consumer confidence in the Pacific region, which includes California, jumped sharply.

If the improvements continue, they could prove a boon to Gov. Pete Wilson (R) in his uphill reelection bid. Good economic news usually benefits the incumbent.

It may make it harder, however, for the state to squeeze more largess out of Washington. State lawmakers have been trouping to the nation's capital, tin cup in hand, arguing that California has been unfairly hit by everything from defense cuts to illegal immigration.

President Clinton, mindful of the state's political importance, has been sympathetic. Congress may now be less so.