Federal Reserve District, 12th ; California

Carolyn Sherwood-Call

English

Research Papers in Economics

FRBSF WEEKLY LETTER
Number 92-29, August 21, 1992
What's Happening to
~.. ,... .-" -.,.
~outnernLallTOrnla!
California's economy has received considerable
attention in recent months, as problems have
mounted and employment conditions have con-
tinued to deteriorate. Most of California's troubles
have been concentrated in the southern part of
the state. Six southern California counties (Los
Angeles, Orange, Riverside, San Bernardino, San
Diego, and Ventura) have lost 520,000 jobs since
employment peaked in March of1990, a decline
of 7 percent. That means that southern California,
which provides 57 percent of the state's jobs,
a.ccountsfor fully 87 percent of the state's job
losses during thisdownturn.
This Weekly Letter compares the economic per-
formances of the various subregions within the
southern California area, using two alternative
measures of their recession experiences. Then it
discusses how the national recession, defense
cutbacks, real estate problems, and business cli-
mate problems contributed to the whole region's
economic deterioration.
Different regions, different fates?
Focusing either on the absolute number or per-
centage of jobs lost suggests that Los Angeles
County has borne the brunt ofthis down cycle.
L.A. County has lost 369,000 jobs, or 8.6 percent
ofits employment. OrangeCountyhas lost87,000 of
its jobs, a decline of 7.1 percent. Job losses in
other parts ofsouthern California have been more
modest, ranging from 2.1 percent in Riverside/
San Bernardino to 4.2 percent in San Diego.
An alternative measure of the recession's impact
on different regions compares the rate of growth
during the expansion with the rate of decline
during the subsequent contraction. By this meas-
ure, a region would be considered hard hit if its
employment growth rate changed dramatically,
even if employment did not decline particularly
sharply during the contraction.
This measure &ives a different picture of southern
California, since L.A. County grew considerably
more slowlythan the rest of southern California
did during the expansion of the 1980s. Between
the beginning of 1983 and the beginning of 1990,
employment in L.A. County grew at an annual
rate of 2.9 percent-actually a little slower than
the 3.0 percent growth seen nationally during the
same period. In contrast, Orange/Ventura, and
San Diego Counties all saw employment grow at
annual rates of 5 to 6 percent. The Riverside/San
Bernardino area grew even faster, at an annual
rate of 7.5 percent.
Thus, the change in employment growth be-
tween the expansion of the 1980s and the con-
traction of the early 1990s-the "differential"-
was actually smaller in L.A. County (7.0 percent-
age points) than in the rest of southern California
(8.3 percentage points). With a differential of
9.1 percentage points, Riverside/San Bernardino
becomes the southern California region most af-
fected by the recession. By way ofcomparison,
the differential for the U.s. was 3.9 percentage
points, while the statewide differential for Cali-
fornia was 6:2 percentage points.
These figures counter the notion that the impact
of the recession has been concentrated in Los
Angeles County. Rather, L.A:s greater share of the
job losses appears to result from its longer-term
sluggishness in job growth relative.to its neigh-
boring counties. What these figures do suggest is
that the current downturn is hitting the entirp
southern California area extremely hard.
THE WESTERn ECOnOmy The Western Economy is a quarterly
review of economic conditions in the Twelfth Federal Reserve District. It is published in the Weekly Letter
on the third Friday of February, May, August and November.FRBSF
An unusual recession
A look at recent history suggests that it should not
be surprising that southern California is feeling
the effects of the national recession. In the 1975-
1980 business cycle (expansion and recession),
southern California's differential (5.9 percentage
points) was slightly higher than the nation's (5.8
percentage points); in the 1980-82cycle, southern
California's differential (5.4 percentage points)
was afull percentagepointworse than the nation's
(4.3 percentage points).
However, the deterioration in the area's economy
has been much greater during the current cycle
than it was during the early 1980s, even though
the u.s. recession has been milder. If this reces-
sion had the same impact on southern California's
employment as earlier recessions did, job losses
would have been less than 65,000-a much
smaller decline than has actually occurred.
The roles ofdefense and real estate
The defense and real estate sectors have received
much ofthe blame forthe severity of southern
California's downturn. These two sectors have ex-
perienced particularly hard times during the past
couple of years. Since the region's employment
peaked in March of 1990, the six southern Cali-
fornia counties have lost 23 percent oftheir aero-
space jobs,a decline of 49,000. And southern
California has lost 116,000 of its construction jobs
during that period, a decline of 30 percent.
Moreover, these direct job losses led to additional
losses in a variety of sectors, as laid-off workers
cut back on their purchases. These secondary
effects would be smaller for construction activity
than for aerospace, since some ofthe decline in
construction is itself a secondary effect, that is,
due to weakness in other sectors. However, de-
clining property values, especially in commercial
real estate, could provide additional constraints
on economicactivity in the region.
Even so, the declines in aerospace and construc-
tion employment, together withtypical estimates
of their associated secondary effects, would not
be expected to result in a loss of as many as
520,000 jobs. In fact, employment in southern
California has deteriorated dramatically across
a broad range of industries. The number of job
losses has been greater in both trade (151,000)
and nonaerospace manufacturing (123,000) than
in either construction or aerospace.
Business dimate
Deterioration in the area's business climate may
have contributed to the breadth and depth of
the downturn. Complaints about traffic and high
costs have been around for at least ten or twenty
years, but in the last few years air quality regula-
tions have become more stringent and workers'
compensation coverage more expensive. These
"business climate" factors seem to have become
more binding in recent years, and in the gener-
ally weak economic climate they may loom larger
in firms' decisions than they would during more
vigorous economic times.
It is hard to get a handle on just how large the
effects from these factors are. A few industries
affected by more stringent air quality regulations
have seen significant declines in area employ-
ment in recent years. For example, southern
California's furniture and fixtures industry, which
traditionally has relied on solvents whose use is
now restricted, has lost 37 percent, or 15,000, of
its jobs since its employment peaked in 1987.
Nevertheless, there is no evidence of a mass mi-
gration of business out of the southern California
area.
Conclusions
Southern California currently is experiencing
economic problems on a scale that the region has
not seen in decades. While most of the region's
job losses have been in Los Angeles County, the
rest ofsouthern California has seen its performance
change just as dramatically. Possible explanations
for the area's recent troubles include the national
recession, defense cutbacks, problems in the real
estate and construction industries, and changes
in the area's business climate. None of these
explanations alone is sufficientto explain the
severity of southern California's problems, but
they have all hit at roughly the same time. This
unusual convergence of negative forces does go
a long way toward accounting for the magnitude
of southern California's economic woes.
Carolyn Sherwood-Call
EconomistDISTRICT INDICATORS
(Seasonally Adjusted)
9202 ;9201 9104 9103 9102 9101 9004 9003
AGRICULTURE
U.S. CROP PRICES, 1985=100 108.0 109.5 110.9 114.7 116.1 113.3 114.6' 115.8
DISTRICT CROP PRICES, 1985=100 101.4 114.0 107.9 120.4 129.6 107.3 112.5 112.9
FARM CASH RECEIPTS, MILLION $ 2362.3 2445.9 2694.2 2529.5 2698.3 2529.0 2629.7 2630.7
CATTLE ON FEED, 1985=100 87.1 86.5 80.4 84.4 92.1 92.4 88.9 88.7
CATTLE PRICES, CAliFORNIA, $/CWT. 57.4 60.9 62.1 62.6 66.4 64.5 63.9 65.9
FORESTRY
LUMBER PRODUCTION, MILLIONS BOARD FEET 1196.5 1417.9 1351.8 1428.7 1467.7 1359.0 1360.5 1528.7
NORTHWEST LUMBER INVENTORY, MIL. BD. FT. 2269.0 2173.9 2297.1 2422.3 2315.0 2377.1 2335.6 2472.8
U.S. LUMBER PRICES, 1986=100 154.4 157.1 137.2 131.2 138.3 113.8 120:6 129.6
ENERGY
SPOT PRICE OF OIL, $IBARREL 21.1 18.9 21.8 21.6 20.8 22.1 32.1 26.2
U.S. RIG COUNT 696.0 650.9 789.1 802.6 924.3 951.1 1096.3 1003.5
DISTRICT RIG COUNT 68.9 55.6 60.9 73.3 83.8 73.2 74.5 75.1
FUEL MINING EMPLOYMENT, 1985=100 70.3 70.1 69.9 72.7 73.6 74.8 73.9 74.1
U.S. SEISMIC CREW COUNT 63.0 80.2 89.7 98.4 110.2 117.9 12o.s 122.7
MINING
MINERAL PRICES, 1986=100 107.7 105.3 103.2 105.6 109.2 108.2 112.2 129.0
METAL MINING EMPLOYMENT, 1985=100 176.8 180.9 180.7 184.1 185.9 193.1 195.9 197.9
CONSTRUCTION
NONRESIDENTIAL AWARDS. 1985=100 104.1 115.0 103.7 93.4 103.1 106.3 101.1 111.8
RESIDENTIAL PERMITS 19182 19780 19496 18524 19633 17667 18524 22940
WESTERN HOUSING STARTS, THOUSANDS 26.8 21.9 19.5 24.1 25.5 15.6 18.6 29.1
CONSTRUCTION EMPLOYMENT, THOUSANDS 908.2 906.9 912.1 929.3 938.8 957.7 1002.0 1034.7
MANUFACTURING
WAGES, CALIFORNIA, $/HOUR 12.2 12.1 12.0 11.9 11.8 11.8 11.7 11.5
EMPLOYMENT,THOUSANDS 2909.6 2948.0 2956.4 2982.4 3005.8 3050.3 3102.4 3135.2
DURABLES, 1985=100 91.7 93.0 93.9 95.3 96.3 97.9 100.0 101.7
CONSTRUCTION DURABLES, 1985=100 93.5 94.3 93.7 95.4 95.6 97.7 104.0 108.5
AEROSPACE,1985=100 99.1 103.1 105.6 107.0 109.4 111.9 114.0 116.0
ELECTRONICS, 1985=100 87.3 87.8 88.5 90.6 92.2 92.8 92.4 93.1
SEMICONDUCTOR ORpERS, MIL. $, NOTSA 1499.3 1441.8 1393.1 1268.5 1289.4 1217.6 1208.0 1240.8
WHLS/RETAIL TRADE EMPLOYMENT, THOUSANDS 4676.5 4701.4 4693.0 4713.4 4725.7 4725.7 4791.9 4812.4
RETAIL SALES, PACIFIC DISTRICT, MIL. $ N/A 25893 25078 25445 25321 24655 25101 25123
SERVICES EMPLOYMENT, THOUSANDS 5504.4 5497.4 5488.5 5471.9 5445.0 5404.5 5441.2 5418.1
HEALTH CARE, 1985=100 132.5 131.8 131.2 129.8 128.9 127.6 127.6 125.2
BUSINESS SERVICES, 1985=100 113.7 113.4 112.0 112.7 113.6 113.1 112.6 113.7
HOTEL, 1985=100 132.3 133.3 134.5 131.7 132.1 132.1 135.4 134.8
RECREATION,1985=100 139.4 139.5 140.7 139.1 140.1 138.2 139.6 136.8
FINANCE, INSUR. AND REAL ESTATE EMPL. 1239.1 1244.3 1242.3 1245.0 1247.2 1247.9 1258.8 1259.3
GOVERNMENT EMPLOYMENT, THOUSANDS
FEDERAL GOVERNMENT 601.2 609.7 611.5 614.1 610.7 614.5 618.8 632.6
STATE AND LOCAL 2905.2 2901.6 2883.8 2888.9 2863.2 2851.0 2842.2 2832.3
Data are weighted aggregates of available 12th District data constructed by FRBSF staff from public and Industry sources.
Opinions expressed in this newsletter do not necessarily reflect the views of the management of the Federal Reserve Bank of
San Francisco, or of the Board of Governors of the Federal Reserve System.
EditQrial comments may be addressed to the editor orto the author.... Free copies of Federal Reserve publications can be
obtained from the Public Information Department, Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco 94120.
Phone (415) 974-2246, Fax (415) 974-3341.
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DRIlCBssion
12! Growth less than 2.5%
• 2.5% to 3% growth
• Growth above3%
Twelfth District Business Sentiment*
GDP
60
20
40
80
100 ~=~~-------------~
02 03 04 01 02 03 04 01 02 03
1991 1992
'ExpectationsforGOPgrowthduringthenextfourqllartersbasedona
survey of approximately 75 business leadarsinihe 12th Federal Resarve District.
UNEMPLOYMENT RATES
AVERAGE OUARTERLY DATA
9202 9201 9104 9103 9102
ALASKA 9.1 9.1 9.8 8.8 8.0
ARIZONA 7.3 8.7 7.3 5.6 4.9
CALIFORNIA 8.7 8.4 7.7 7.6 7.7
HAWAII 4.0 3.5 3.0 2.7 2.5
IDAHO 6.2 6.3 6.2 5.7 6.3
NEVADA 6.1 6.6 5.7 5.5 5.6
OREGON 6.7 8.1 6.5 5.9 5.8
UTAH 4.8 4.6 5.3 5.1 4.7
WASHINGTON 6.8 7.3 6.8 6.3 6.3
12TH DISTRICT 7.9 8.0 7.2 6.9 6.9
U.S. 7.5 7.2 7.0 6.8 6.8
• Year-la-date
Percent
PERSONAL INCOME
ANNUALIZED PERCENT GROWTH RATES
9201 9104 9103 9102 9101
ALASKA 9.7 6.7 4.9 -1.8 6.7
ARIZONA 5.3 4.1 -0.4 5.1 5.5
CALIFORNIA 5.1 -0.4 2.9 5.4 -2.8
HAWAII 6.9 2.9 5.1 3.3 4.8
IDAHO 3.4 13.6 3.4 9.1 -8.3
NEVADA 8.4 1.2 5.0 4.6 3.5
OREGON 9.1 4.6 5.5 4.2 1.7
UTAH 7.2 5.2 4.7 6.8 4.9
WASHINGTON 4.0 7.2 5.4 4.6 3.6
12TH DISTRICT 5.4 1.5 3.2 5.2 -0.8
U.S. 5.4 3.8 2.9 4.3 0.1
• Year-la-date
NON-AGRICULTURAL EMPLOYMENT
ANNUALIZED PERCENT GROWTH RATES
9202 9201 9104 9103 9102
ALASKA -7.4 3.5 7.3 0.6 -1.8
ARIZONA -1.4 0.6 -0.2 2.8 -0.1
CALIFORNIA -1.7 -0.5 -3.4 -1.1 -0.8
HAWAII -1.3 1.2 1.4 2.6 -0.6
IDAHO -3.3 5.9 5.9 3.1 2.2
NEVADA -1.7 4.2 4.2 2.2 0.7
OREGON -0.1 3.6 1.5 1.2 -0.5
UTAH 1.7 3.0 2.0 3.4 0.9
WASHINGTON -2.3 1.8 2.9 1.6 1.1
12TH DISTRICT -1.6 0.6 -1.3 0.1 -0.4
U.S. 1.1 -0.2 -0.2 0.1 -1.3
• Year-la-date

What's happening to Southern California?

http://www.frbsf.org/publications/economics/letter/1992/el92-29.pdf

What's happening to Southern California?

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