California economic outlook a mix of optimism, uncertainty
By Gary Gentile
Associated Press
LOS ANGELES — A war with Iraq, the fear of terrorism and the state's continuing fiscal problems will put pressure on California's economy this year, although most Southern California counties are poised for a recovery in 2004, according to a new report by the Los Angeles County Economic Development Corp.
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Even a short war of about three months would send gas prices skyrocketing and would hurt the state's tourism industry as even local visitors will be hesitant to drive too far from home, according to the report.
Visitors to Universal Studio's CityWalk stroll through the shopping and entertainment attraction in the Universal City area of Los Angeles. War with Iraq could be a mixed bag for California's economy. Tourism would likely decline, but defense spending could fuel an economic turnaround.
"Gasoline prices will spike, people will be hesitant to go any great distance and you have this lurking threat of terrorism," said Jack Kyser, the LAEDC's chief economist and one of the authors of the 2003-04 economic forecast.
Unemployment should increase statewide to 6.5 percent in 2003, but will improve slightly to 6.1 percent in 2004 fueled by an increase in international trade and manufacturing, the report concluded.
International uncertainty, including political instability in Venezuela and the continuing standoff with North Korea, will depress the economy in the first half of the year, the report concludes.
The state's economic problems will also hurt the local economy as local and county governments cut spending and the state looks to increased business taxes to raise revenue, the report warns.
Increased fees, taxes and demands on business, including paid family leave, will hurt the business climate this year and next and already businesses are talking about moving out of state, the report suggests.
"We know there is a lot of pressure on business," Kyser said. "We are still seeing some larger firms thinking of expanding, but there is so much pressure on the small to medium-sized business and that's what we're concerned about."
War and terrorism will have a two-edged effect on Southern California's economy.
While an increase in defense spending bodes well for aerospace and defense firms, the increased cost of doing business in California may cause some contractors to think about moving operations.
But overall, increased defense spending should be the fuel for a turnaround in the state's manufacturing sector in 2004.
The split between Southern California's more diversified economy and the north's continued dependence on high-tech will continue through 2004, the report said.
In fact, Southern California narrowly escaped a recession in 2002 and the economy will grow at 2.7 percent this year and 3.5 percent in 2004, the economists said.
The forecasters said that leading the growth will be the Riverside and San Bernardino area, where economic growth is estimated to be 4.3 percent in 2003 and 2004.
The technology sector will rebound in 2004, the report predicts.
"If you're a savvy investor, you're in the (San Francisco) Bay area scouting out buildings," Kyser said. "The Bay area will come back. There's just too much intellectual capital up there."
