It's The Golden State Again
During the first half of the 1990s, the state of California seemed to be laboring under a curse. Floods, fires, riots, government financial problems, and massive cutbacks in defense spending all conspired to keep the state's economy in low gear. As late as 1993, California's job rolls were still shrinking. Indeed, the troubles in California--which accounts for 11% of U.S. employment--may have significantly held back overall U.S. economic growth.
Yet a newly resurgent California may help keep the weakening U.S. economy afloat this year. According to a recent report from David Hensley and Kathryn Chin of Salomon Brothers Inc., job growth in California in 1996 could reach 3%, far greater than the projected national average of 1.4%.
One key reason for the positive outlook, they note, is that "California's aerospace bust is drawing to a close." For example, after losing 85,000 jobs in 1993 and 1994, aerospace losses slowed to a much more manageable 16,000 in 1995. Instead, California is riding the technology and entertainment boom. Business services--which include computer software--have generated 90,000 jobs over the past year, while the movie industry added another 15,000.
The economic surge in East Asia is reviving California's manufacturing sector. A study from Regional Financial Associates Inc., an economic consulting firm in West Chester, Pa., observes that merchandise exports make up 9% of California's economy, up from 5% in 1985. By comparison, defense spending now is only 4% of the state's economy.
California still suffers from a reputation as an expensive place to live and work. But that, too, is changing. In 1995, prices rose by a minuscule 1.0% in the Los Angeles area, and only 1.9% around San Francisco, far less than the national average of 2.6%. As a result, the state may be able to reduce the outflow of businesses and workers that has plagued it in recent years.