2004-2005 LAEDC Mid-Year Forecast - "Motion Picture & International Trade
Among Critical Local Industries Facing Threatening Challenges" Study Says

Los Angeles, CA. - Of Southern California's 11 largest export industries, seven face significant challenges, which in some cases are "industry threatening," according to the Los Angeles County Economic Development (LAEDC)'s 2004-2005 Mid-Year Forecast.

"California's economy will continue to gather momentum over the balance of 2004 and into 2005," said Chief Economist and Senior Vice President Jack Kyser, who authored the study. "The state's economy will grow by 0.8 percent or by 114,000 jobs in 2004, accelerating to 1.3 percent or 189,100 jobs in 2005. These are conservative forecasts reflecting the cost to business of adding workers."

Kyser also noted that the state's critical manufacturing sector will lose jobs again this year, but should hold steady in both 2005 and 2006.

"California's business environment will continue to present a challenge - there is a 'premium' attached to doing business in the state and it is getting bigger," he said. "The business environment will remain a hot topic over the next 12 months, including how much of a reduction will there be in the costs of workmen's compensation insurance (so far rather moderate), how paid family leave works in practice, the increased contributions by business to the unemployment insurance fund, and nuisance law suits."

One of the severely threatened industries is the motion picture/TV production. "The labor situation is unsettled, there is the growing threat of piracy, and there is run-away production," the study said. "Here, most people worry about Canada, but the roster of off-shore destinations includes Europe and Australia."

However, the LAEDC Forecast indicates that run-away production to other states is becoming a major challenge, as many of them offer significant incentives while California has none because of the budget crisis. Employment in this industry in Los Angles County is expected to decline by 1,500 jobs during 2004. The peak for this industry occurred in 1999 when average employment was 146,000 jobs.

The study also noted that the other severely threatened Southern California industry is international trade. This comes despite new record levels for trade being attained during 2004: "the total value of international trade will rise by a whopping 14.9 percent to $270 billion, while the number of jobs should increase by 52,600." However, the list of "wrongs" attributed to international trade is long.

"There is increasing public anger over the growing volume of trucks hauling containers on local freeways, environmentalists are on the war path over diesel pollution," explained Kyser. "And the two railroads serving Southern California are straining to keep up with the stronger-than-forecast trade activity, as well as handle non-international cargo flows into and out of the region (if all the manufacturing jobs in the six Southern California counties were added together, the region would be the second largest 'state' in this measure, and need a lot to keep them going)."

The Forecast pointed out that international trade is a much-fractured industry. If no action is taken, the ports and allied industries could find themselves in the same type of gridlock that Los Angeles International Airport currently faces (growing demand but how to serve it?).

Two industries, aerospace and tourism, were highlighted in the Mid-04 LAEDC Forecast as having improving prospects. The first is aerospace, where $36.4 billion in Department of Defense prime contract awards have come into the five-county area in the last three fiscal years ('01-'03). The major local aerospace firms are coping with retirements of skilled workers, while at the same time they are trying to hire people to work on the new contracts. "Tourism is another local industry with improving prospects over the balance of 2004 into 2005," said Kyser. "A big impact will come from the six new rides at local theme parks, which the Forecast points out is a very unusual occurrence during a 12-month period.

For Los Angeles, the recent agreement on development of the convention center hotel and adjacent retail/entertainment center will put the city back into the convention and business show game when they open in 2007.

" There are conflicting trends in housing. "New home construction in Southern California should generally hold at high levels in 2004, and then ease off in 2005," Kyser said. "However, in the resale market there is growing fear of a "price bubble" due to rapidly rising prices. However, there is a significant demand/supply imbalance in the coastal counties of Southern California. In addition, trends in the mortgage market have to be considered."

The LAEDC Forecast places the 30-year conventional mortgage rate at 7.25 percent during the 4th quarter of 2005, not a devastating level but markedly higher than today. However, people with adjustable rate mortgages or 0-interest loans could feel some pain the study noted. Affordable homes ($300,000 or under) are forecast to see prices and unit sales level off toward year-end 2004.In the higher priced market, there could be some modest price declines.

"We are urging local leaders to develop a 'vision' of what the Southern California economy should look like, in order to create good quality jobs and generate the necessary tax revenue to provide public services," said CEO & President Lee Harrington. "Additionally we need to start catching up with the region's infrastructure 'deficit' (i.e., shortfall in transportation, schools and other items)."

The LAEDC is a section 501(c) (3) private non-profit corporation, which mission is to attract, retain and grow businesses and jobs in the regions of Los Angeles County. The consulting practice of the LAEDC carries out selected projects of major economic significance. Recent clients have included the California Chamber of Commerce, Port of LA, UCLA, and Wal-Mart.

For interviews and digital photos please call George McQuade 818.340.5300 or 818.618.9229 or Aida Mayo, 818.618.9226or email: PR@MayoCommunications.com.

For a detailed look at the LAEDC 2004-05 Mid-Year Forecast please visit: www.MayoCommunications.com (flashing white star) or http://laedc.info/pdf/LAEF-04-07.pdf

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