Business Update with Mark Lacter

Business Update with Mark Lacter for August 2, 2011

KPCC's business analyst Mark Lacter talks about what the federal debt deal means for California; he also talks about the late L.A. philanthropist, John Anderson.

Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, any sign about what the federal debt deal means for local, state economies?

Mark Lacter: Steve, this is like that old Woody Allen line about dividing life into the miserable and the horrible. At this point - and it's still very early - we're probably looking at only the miserable. The package is heavily back-loaded, which means that the cuts won't be all that severe in 2012 - something that a lot of economists had been worrying about. (The fear has been that cutting back at a time when the economy is still struggling, and when state and local governments have been dealing with their own problems, could potentially lead to another recession.) So it's important that these cuts won't happen tomorrow. Another positive is that two of Southern California's most successful industries these days, entertainment and technology, probably won't be impacted all that much. The one industry that's likely to take some sort of hit is defense - there's a trigger mechanism in the legislation that would go into effect if lawmakers can't agree on additional cuts, and defense would bear the brunt of those reductions.

Julian: We've seen Southern California's aerospace industry slashed over the last 20 years or so...

Lacter: True, but there’s still about 50,000 aerospace workers in the L.A. area - so the possibility of consolidation and layoffs would not be very good for the economy. To give you an idea, Northrop Grumman has a large plant in El Segundo where they do work on the F-35 fighter program. That's run into all sorts of cost overruns and it's been mentioned as a possible candidate for cuts. Another industry that could be vulnerable is engineering and construction. That includes companies like Fluor Corporation, which still has a large presence in Orange County; and Jacobs Engineering Group, which is based in Pasadena and depends on the government for more than a third of its sales.

Julian: Bottom line?

Lacter: Bottom line is that lots of federal dollars go into the local economy. No matter how you feel about the importance of reducing the deficit, government cutbacks clearly impact economic growth (that's one reason why the nation's gross domestic product was so disappointing in the second quarter). And it's also worth mentioning that even before the federal debt legislation, there's been a big reduction in government employment - around 60,000 jobs in California over the last 12 months, about a third of that total coming from L.A. County alone.

Julian: Is it safe to assume that those numbers are only going to get bigger?

Lacter: Unfortunately yes, especially as the last of the federal stimulus dollars are spent and governments continue to cut - and it's also safe to assume that many of the folks who are losing their jobs are going to have a tough time finding something else. These cuts do have consequences.

Julian: Mark, let's talk for a moment about John Anderson who passed away at 93...

Lacter: Here was one of the major names in Los Angeles business –
and a classic example of the self-made man. John Anderson was an accountant turned lawyer turned investor. Over the years, he bought into more than 40 businesses in real estate, insurance, car sales, financial services, manufacturing, and beverages - and he obviously made some good picks because his wealth was estimated by Forbes magazine at $2.4 billion. He took a kind of Warren Buffett approach to investment - don't be a micro-manager, always focus on finding the right people to run things, and never look to make a fast buck. He was a major contributor to UCLA's graduate school of management, which is named after him.

Julian: What kind of guy was he?

Lacter: He was probably the least pretentious billionaire you're likely to run across - an old-school gentleman who didn't need to have a publicist remind everybody what an important guy he was.

Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.


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