Riots Worsened the State’s Slump, Study Says : UCLA Says California Has Yet to Begin a Recovery

The Los Angeles riots have taken a toll on tourism, jobs and income in the region, exacerbating the state’s deep economic slump even as much of the nation begins a long-awaited recovery, a UCLA study has found.

For Californians, the economic turnaround may not come until 1993, according to David G. Hensley, author of a report titled “Hopes for a ’92 Recovery Are Fading Fast.”

Even beyond the riots, a host of economic problems continue to plague California, including weak employment and low levels of consumer spending, the study found.

“While the halting recovery continues nationally, California still seems firmly mired in its recession,” Hensley, director of the UCLA Business Forecasting Project, says in the report released Thursday. “Moreover, there is nothing we can point to in the recent evidence to suggest that a local recovery is imminent.”

Among the evidence: Signs of continued shrinkage of job totals in California and no pickup in construction of new homes. In addition, a decline in sales tax revenue earlier in the year suggests low levels of purchasing by consumers.

“Against this backdrop, the recent riots in Los Angeles have convulsed the region and further damaged its economy,” the report says.

In a more upbeat, midyear report, economists at Chapman University in Orange say the recession that has claimed thousands of jobs in Orange and Riverside counties the past two years has subsided. The report, however, says the prognosis for the rest of 1992 is “a very weak recovery.”

Both the UCLA and Chapman studies say the national economy was in a slow recovery. UCLA predicts that an uneven national recovery will continue this year at a 1.8% growth rate, and that the U.S. upturn will accelerate to a 3.3% level in 1993.

The UCLA study of the state economy points to significant disparities within California--with the Bay Area and inland regions best off and Los Angeles County on the bottom. Also, a look at the “three critical ingredients” for a statewide upturn--home building, consumer spending and the U.S. economy--provided only limited cause for cheer.

Of those three ingredients, just the U.S. economy, which will raise the demand for California goods and services as the national recovery picks up steam, is clearly moving in the right direction, Hensley maintains.

Of all the question marks hovering over the California economy, perhaps the biggest is the long-term fallout from the rioting.

The UCLA analysts assume that the riots will cause a 20% drop in travel to Los Angeles this summer, gradually easing to a 10% loss by next spring. Such declines are expected to cost 41,000 jobs this summer, a gap that will narrow to 29,000 jobs annually over the long haul.

At the same time, the riots have created new construction needs, mostly to rebuild burned stores. This factor prompted UCLA to raise its estimate of non-residential construction by $500 million in 1993 and $750 million in 1994.

The UCLA analysts repeat earlier estimates that $750 million in property was destroyed, and they say 7,000 initial claims for unemployment insurance were filed after the rioting. By some calculations, the riots disrupted as many as 20,000 jobs, at least temporarily.

On a long-term basis, the riots raise a few principal dangers for California’s economy, the report finds. Among them are the decline in tourism and the possibility of reduced capital flow into the region, which will suppress business growth and weigh down real estate values. Also, the disorder might touch off a migration of households and businesses from the area.

Such potential troubles could be limited significantly by the outcome of official efforts to restore the region, the report says. For now, however, it is too early to say how the Rebuild L.A. effort will be viewed, or how successful it will be at offsetting the long-term economic dangers, the UCLA analysts maintain.

Among UCLA’s other findings:

* Although home building in California has been flat, it should increase next year, pushed by attractive mortgage rates and a smaller surplus of new homes. Construction jobs are forecast to expand by 2.9% next year and 5% in 1994.

* Cutbacks in bank employment are expected to ease, and bank jobs could increase as the California economy strengthens next year.

* Aerospace employment will continue to fall--9.9%, or 31,000 jobs this year, followed by drops of 6.1% in 1993 and 4.5% in 1994.

* The state budget crisis will lead to declines in jobs in state and local government--which account for 13% of the state’s jobs--at rates of 1% to 2% through mid-1993.