NEWS ANALYSIS : For California, Experts See Few Bright Spots

The California economy--once touted as so richly diversified that it was nearly recession-proof--is showing signs of unraveling, even as business conditions across the country display fresh signs of life.

Government employment figures released Friday buttressed the growing pessimism among economists, some of whom now believe the state will remain mired in recession until late 1993 or early 1994. The government statistics, which show California unemployment climbing to 10.1% in November from 9.8% in October, also reflected the broad swath that the recession has cut through the state.

Jobs are being lost even in sectors of the economy, such as services, which traditionally have grown or remained stable through recessions. One disturbing sign that an economic rebound may be far off is that hiring by temporary help agencies--which usually picks up shortly before a full-fledged recovery begins--was off last month.

In all, 16,800 payroll jobs were lost last month, and seven of the eight major non-farm employment categories were down. Only government hiring increased in November, although even that is considered a temporary boost.

A separate poll of California households showed employment growing by a modest 35,000 during November, but analysts dismissed the study as less reliable than the payroll survey that disclosed continued job losses.

“You don’t have anything at all to point to as encouraging,” said David Hensley, director of the UCLA Business Forecasting Project.

“This loss of employment comes against a backdrop of a decline in construction volume, declining taxable sales and declining home sales,” Hensley added. “It’s not like this is the only piece of evidence that we’re slipping . . . I don’t see any evidence on the horizon that we’re about to turn around.”

By Hensley’s reckoning, California’s current downturn is its worst since World War II. Although the unemployment rate peaked at 11.2% in the early 1980s, that slump lasted only about 18 months, layoff totals were lower and employment in services continued to grow. In addition, Hensley said, today’s unemployment rate is understated by the large number of people counted as employed who actually were laid-off from full-time jobs and now are struggling to get by with part-time jobs or by working as self-employed consultants.

Why have things gotten so bad? Explanations vary, but they all cite the brutal pounding California has taken from federal cutbacks in aerospace and defense spending, leading to huge layoffs in the private sector and numerous military base closings.

A rash of disasters in the last few years--including earthquakes, severe drought, freezing weather and the Los Angeles riots--further deepened the state’s misery. California’s go-go business climate in the 1980s led to overexpansion, giving rise to the continuing wave of job losses through bank mergers, retail bankruptcies and other corporate streamlining.

“We had too many banks, too many stores and probably too many car dealers and whatever, so we’re taking that adjustment now,” said Ted Gibson, economist with the California Department of Finance.

As more people lost jobs and took longer to find new ones, they tightened their belts and spent less, aggravating conditions for home builders, retailers and consumer goods manufacturers.

At the same time, California appears to have lost some of its competitive edge over other states, driving industry and jobs away. Despite collapsing real estate prices, the cost of housing in the state remains far higher than it does around most of the rest of the country.

Also, traffic congestion, particularly in Los Angeles, makes it more expensive to ship goods. On top of that, the state has gained a reputation for over-regulation and an inefficient workers’ compensation system. This year’s state budget stalemate, exacerbated by the recession, further tarnished the state’s image.

For those reasons and others, the helpful tug of an improving national economy so far has failed to pull California out of its hole. Gibson notes that the U.S. electronics and computer manufacturing businesses, spurred by a wave of cost-cutting, have rebounded smartly this year. Yet in California’s Silicon Valley, widely considered the cradle of the computer business, employment continues to suffer. He speculates that the new jobs are going to such states as Texas, Arizona and New Mexico instead.

To be sure, California’s vast market, highly skilled work force and entrepreneurial tradition are expected to spur an eventual recovery. Once a rebound is under way, the state’s diversity is expected to pay dividends again.

For now, however, the state’s booming population and expanding pool of job hunters are leaving more and more people without jobs. By one state estimate, employment is down 800,000 since hitting a peak in May, 1990, while the labor force, over the same period, has grown by 788,000.

Even before the dismal November employment figures came out, economists already were setting their sights lower for the state economy. A survey of nine California economists taken in early October, predicted that payroll jobs in the state would rise a scant 0.7% in 1993, off from an increase of 1.0% projected by the same economists a month earlier.

Meanwhile, economists keep revising their prediction of when California will bounce back, with some fearing recovery won’t come until 1994. What makes any projection particularly difficult, UCLA’s Hensley said, is that “we’re clearly in unprecedented territory with the severity of this recession, both in terms of depth and duration.”

In fact, Hensley worries that California could be in a downward spiral such as those being suffered by New York and, in particular, Massachusetts, whose economic “miracle” of the late 1980s later took a disastrous turn.

In both of those Northeastern states, which once also boasted of strong economic diversity, the recession struck before it reached California and it continues to drag on.

“It’s frightening,” Hensley said.