State’s Recovery Is Seen Slowing

War jitters, tech woes and budget blues are slowing California’s recovery, according to local economic forecasters, who have significantly downgraded the state’s growth prospects for this year.

The Los Angeles County Economic Development Corp., which in September predicted that the state would generate 260,000 new jobs in 2003, has slashed that estimate to 94,000 jobs -- a 64% reduction -- in an updated forecast to be released today.

The LAEDC cut its employment estimates for every region in the state, most significantly in the Bay Area, after California’s economy lost steam in the fourth quarter, said Jack Kyser, chief economist with the private nonprofit group. The revision puts the organization’s job forecast among the most conservative in the state, lower than even that of economists at UCLA, who have been pessimistic about the strength of the U.S. and California recoveries.

“We have whittled them all back,� Kyser said of the employment projections. Last fall, he noted, “we were looking at an economy we thought would be recovering more rapidly. Obviously that hasn’t happened.�

Kyser said the public’s apprehension over the looming conflict with Iraq has combined with an already weak economy to create indecision among consumers and businesses. Shoppers sat on their wallets during the holiday shopping season, turning it into one of the worst in years. LAEDC analysts predict that consumers would retreat even further if bombs started falling on Baghdad, depriving the economy, at least temporarily, of one of its most important drivers.

“People will be glued to their television sets and will cut back on their shopping and travel, just as they did in the Gulf War,� according to the forecast.

War concerns, coupled with sluggish sales and dwindling profits, also appear to be delaying the long-awaited upturn in business spending, as employers sit tight instead of buying equipment and hiring workers.

Last fall, LAEDC economists predicted that Northern California would gain 43,000 jobs this year as the tech sector stirred to life. But with few signs of rebound in sight, they now see more job losses ahead, with the Oakland, San Francisco and San Jose metro areas shedding a combined 49,500 payrolls in 2003. Even Sacramento, long the job engine of central California, is expected to lose 2,500 jobs as the state’s budget woes slam the brakes on government hiring.

While trimming its 2003 employment-growth estimates for Southern California, the LAEDC still expects the region to lead the state as it has done throughout this sluggish period. The forecast calls for the San Bernardino-Riverside area to once again top all major metro areas in job growth at 3%, or 32,100 jobs, as logistics firms and home builders continue to move into the Inland Empire in pursuit of vacant, affordable land. Orange County, which has been hit by downturns in its key technology and tourism sectors, is expected to perk up a bit this year, with employment expanding by a modest 1.4%, or 19,400 jobs.

Even Los Angeles County, the Southland’s perennial laggard, is expected to outperform the state in terms of employment growth. After losing 18,200 jobs last year, the county is projected to increase its nonfarm payrolls by 1%, or about 40,000 jobs.

LAEDC economists expect some local defense firms to benefit from increased military spending and homeland security efforts. The international trade sector, which was hurt by a 10-day lockout at West Coast ports last year, should benefit from labor peace in 2003. Likewise, analysts said the entertainment industry has finally shaken off the production hangover that slowed new projects last year, when studios worked off a backlog of films they stockpiled in 2001 in fear of potential work stoppages by actors and writers.

Still, Kyser said, the “black clouds� of war and the state’s budget woes could derail even the most conservative projections if a conflict in Iraq drags on or if lawmakers pile billions of dollars in added taxes and other costs onto companies to balance the books.

Some business owners already have downsized in response to a string of perceived “anti-business� legislation passed in recent years, including laws that increase the state minimum wage, workers’ compensation benefits and overtime pay after eight hours in one day instead of a 40-hour week.

Hit hard by spiraling workers’ compensation premiums, Westchester house framer Dave Klein said he is having a tough time passing along those costs to customers, some of whom are turning to unlicensed builders instead. He recently laid off 12 of his 34 employees.

“I’m losing jobs,� said Klein, owner of D.J. Klein Construction. “This state is driving people underground.�