Tech, energy woes threaten Calif. economy : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Posted at 7:35 a.m. PDT Wednesday, April 4, 2001

Tech, energy woes threaten Calif. economy-survey

SAN FRANCISCO (Reuters) - A high-tech crash and a severe energy crisis threaten to derail California's economy and dump the nation's most populous state into recession, according to a closely-watched economic forecast Wednesday.

The survey by economists at the Anderson School at the University of California, Los Angeles (UCLA), said an increasing number of layoffs in Silicon Valley and a steep slow-down in investment in technology and software are ominous signs for the state which boasts having the world's sixth-largest economy.

``The outlook is certainly gloomy compared to where we have been,'' Tom Lieser, the report's author, said in an interview. ''We may still avoid recession in California but energy is the wild card.''

Another problem is the dramatic decline in high-tech stock wealth that once fueled frantic consumer spending and helped keep state coffers flush, Lieser said.

The forecast saw personal income growth dipping steeply from 11.5 percent in 2000 to 4.9 percent in 2001. This will rise again to 5.1 percent in 2002, the report said.

With the overall U.S. economy facing a 90 percent chance of recession this year, according to Anderson forecasters, California's growth rate will almost certainly slow to a crawl, Lieser said.

``What we are getting is a little more significant than just a slowdown,'' Lieser said. ``It is going to put us back in a pretty weak growth pattern for California.''


The energy crisis which has four times led to rolling blackouts across the state this year remains a wild card in the calculations, Lieser said -- although he warned that it could hurt the state in the long run.

So far, California has spent billions of dollars to keep the lights on in the crisis stemming from a flawed deregulation law in 1996 that allowed wholesale power prices to float freely but kept strict price caps on the amount utilities could charge their customers.

As a result, the state's two biggest utilities are on the brink of bankruptcy and continued power shortages threaten millions of California homes and businesses with more rolling blackouts this summer.

Lieser said, however, that a huge bond issue will repay the state for its power purchases and a separate UCLA report on the energy crisis said these expenditures will likely only have a small impact on the state's economy.

That report said California's Gross State Product (GSP) will be about $1.25 trillion for fiscal 2001. Even if if the cost of any bailout tops $30 billion -- a higher figure than current predictions -- the price tag will still be less than 2.5 percent of the state's GSP, the energy report said.

And the rolling blackouts, while a nuisance, may in fact have very little effect on the state's productivity, Christopher Thornberg wrote in the energy report.

``An hour without power can be viewed as an extended coffee break for most businesses and lost production during the downtime can be made up through speeding the pace of operations after the power returns,'' Thornberg said.

Still, Lieser added the energy crisis remains a factor which could help push California into recession, especially since most indicators already point to a slowing economy.

More importantly, if lawmakers can't find a way to keep the lights on, businesses may in the long-term decide not to relocate to California and many others already here may pack up and leave, he added.

``The effects of brownouts and blackouts, if prolonged, could discourage business expansion significantly,'' Lieser wrote in the report.

Growth in payrolls was expected to fall from 3.8 percent in 2000 to 2.4 percent in 2001. This will ease even further to 1.6 percent in 2002, the forecast said.

Residential construction will also perk up a bit in 2001, but not nearly enough to bring relief to the state's tight housing market, Lieser said.

The report pegged the number of residential building permits at 154,000 units in 2001, up from 149,000 units in 2000. But the figure was expected to dip again to 151,000 units in 2002, the report said.

-- Martin Thompson (, April 04, 2001

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