Slower growth forecast for Californian economy

Press, 15 February 1989, Page 49

Slower growth forecast for Californian economy

JOHN HUTCHISON

By

in San Francisco

California’s economy will continue to outpace the nation’s, but at a slowing rate, and several economists are planting flags of caution among the signals of prosperity. The well-regarded annual economic forecast of the Bank of America noted that it will be the seventh consecutive year that the state has been ahead of the national average. Personal income will increase 9.5 per cent, employment will grow by 360,000 jobs (a 2.6 per cent increase) manufacturing productivity will continue to rise, and the state’s gross product will grow faster than the gross national product. Diversity of Californian industry will provide a cushion against expected cutbacks in defence manufacture.

That diversity, and the rapid growth in the state’s population, were the main engines driving Californian prosperity, the bank’s economists said.

The manufacturing sector, with huge hightechnology and commercial aerospace industries,

was a big generator of prosperity, they said. In turn, manufacturing stimulated the service sectors which would provide one third of the newly created jobs. Total employment in 1989 was expected to reach 13.7 million, while the population would rise to nearly 29 million — an increase of 5 million over 1980.

Unemployment, the lowest for the decade, would be 5 per cent. The predicted prosperity would also carry some high price-tags. Inflation would continue to grow, reaching 5.6 per cent compared with 5.1 per cent last year and 0.7 per cent higher than the nation’s, the forecast said. House prices, already the highest in the nation, and the interest paid to finance housing, would go up, making it difficult to recruit qualified employees from other states. Only 22 per cent of Californian householders would be able to buy a median-priced home, whereas the national median price was within the reach of 48 per cent. More jobs and more

people were creating critical problems of traffic congestion, pollution, school crowding, communication strain and inadequate welfare and public services.

The Federal Reserve Bank sees the state’s growth slowing because of high labour costs.

The Centre for the Continuing Study of the California Economy, which has raised similar warnings in the past, says that schooling and housing are not keeping up with population growth, and that the state is not developing adequate education and training for the lowskilled Asian and Latin American immigrants who are the major factors in the census increase.

The ill effects of growth are triggering increasing rebellion in California, where about 100 state and local initiatives have been adopted in this decade by voters wanting to control the swift march of development. Anti-growth sentiment continues to mount in many sectors where citizens see as a cost of prosperity the deterioration of the quality of life.