Economy

The national economy will remain sluggish for at least another six months, California's economy will sputter, and Los Angeles County is in an "economic stall," UCLA economists said in a forecast released today. At the national level, business investment may pick up, but the positive impact will be offset by a dropoff in consumer spending, according to the UCLA Anderson Forecast. UCLA economists have long asserted that the nation's most recent recession was caused by a decline in business investment, not reduced consumer activity, as has been the case in the past. "Like the unique 'business recession,' we are currently experiencing a unique 'business recovery,' as the businesses try to sell off inflated inventory and in particular get more life out of technology investment made in the late 1990s," the forecast reported. "When business begins to increase production due to reduced inventory and start purchasing technology again, then the economy will pick up steam." But consumers have been spending as if there were no problems in the economy, according to UCLA, with unusually low interest rates spurring home and auto purchases. "Large purchases made today due to low interest rates will ultimately result in less spending in the future," according to the Anderson Forecast. "The danger is that consumer spending could potentially drop before business investing picks up speed." Normal growth rates in the national economy should return by the middle or end of 2003, when interest rates and inflation rise and unemployment declines, the UCLA economists said. "In California, the news is actually not as good as it is for the nation," with the state "likely to move sideways throughout 2002, and then sputter during the first half of 2003," according to the forecast. The reason, in part, is that information-technology industries, their suppliers and distributors in California and across the country all continue to suffer from substantial excess capacity and weak earnings, the forecast said. Major employers in this sector are unlikely to increase hiring until profits return, and many companies are still cutting staff, it said. Additionally, according to the Anderson Forecast, "there are other factors troubling the state's economic outlook, not the least of which is the state's enormous budget deficit." Los Angeles County, the forecast reported, has avoided the worst impact of the nation's latest recession, but now "has slipped into an economic stall of its own." Employment in Los Angeles County has remained relatively flat for the past nine months, it said. But "formerly troubled sectors such as business services and the entertainment industry have given way to new trouble spots -- specifically retail trade and manufacturing." Also dimming economic prospects in Los Angeles County, according to the Anderson Forecast: Traffic through LAX and hotel occupancy rates are down, international trade is slow, and bankruptcies are up. The few bright spots in the local economy include "a revival in the motion picture industry... along with an end to the labor strife at the port," according to the forecast. Another study, released today by the USC Lusk Center for Real Estate, reported that the Los Angeles region's office and industrial markets will start to show signs of recovery in mid-2003. A total rebound, according to the study, is more than a year away. The Lusk Center also cited improvements at the port and in the manufacturing sector in predicting "a full blown recovery" for Los Angeles- region office markets by 2004. Port traffic and manufacturing will create demand for warehouse and industrial space, according to Raphael Bostic, director of the study. Bostic said that because of the resiliency of the region's economy, its office and industrial markets have had only a moderate downturn and will have a moderate recovery. Among the county's office markets, the San Gabriel Valley will have the strongest growth starting next summer, according to the study. "It has the advantages of relatively low rents, proximity to the downtown business center, and strong demand from the business services, finance and real estate sectors, which will lead the county's recovery," Bostic said. The mid-Wilshire and San Fernando Valley office markets should also perform well by mid-year due to downtown proximity and affordable rents, according to the Lusk Center. The report said the downtown market should start to recover in mid-2003 while the West Los Angeles market continues to struggle because of the slump in the technology and communications industries.