Anderson Forecast: U.S. economy on the rise, California employment expected to improve
By Elise Anderson March 13, 2013 Category: Research
In its first quarterly report of 2013, the UCLA Anderson Forecast says the nation's gross domestic product is poised to surpass the 2 percent annual growth rate of the past four years and reach 3 percent by 2014. The housing and automobile sectors will be the biggest contributors, together with renewed growth in business construction and exports.
The U.S. economy gained an average of 181,000 jobs a month in 2012. An equivalent gain is expected in 2013, the forecasters say, with acceleration to 200,000 jobs a month in 2014 and 220,000 in 2015. As a result, by the end of 2015, the unemployment rate will fall to about 6.5 percent.
The California forecast for 2013 and 2014 is not much different from last December's, with adjustments for recent data. Total employment growth is expected to be 1.6 percent for 2013, 2.2 percent for 2014 and 2.3 percent for 2015; non-farm payroll employment will grow more slowly, at 1.4 percent, 2.1 percent and 2.3 percent over those three years.
The national forecast
In his March report, UCLA Anderson Forecast senior economist David Shulman asserts that following the nation's slowest postwar recovery from a recession on record, the national economy is beginning to "ramp up."
While Shulman's forecast says the economy will grow at 1.9 percent in 2013, 2.8 percent in 2014 and 3.1 percent in 2015, it's important to keep in mind that these rates of growth are still well below the typical 4–6 percent growth rates associated with prior recoveries.
Along with the higher rates of growth, the forecast calls for inflation in excess of 2 percent in 2014 and 2015, "as the Fed's extraordinary monetary policies catch up to a slow productivity growth economy."
In his essay "Slowly Ramping Up," Shulman contends that growth in the national economy will be led by a rapidly recovering housing market and continued strength in light-vehicle sales. He notes that the housing sector, which led the downturn, is now leading the recovery. Housing starts totaled 718,000 in 2012, up 169,000 from 2011. As a result of low prices and mortgage rates, housing remains affordable.
These factors, coupled with pent-up demand, lead Shulman to conclude that housing starts will exceed 1 million in 2013 and should reach 1.35 million in 2014. Recent strength in automobile sales is expected to continue.
The California forecast
In his California report, "Is California at an Inflection Report?", senior economist Jerry Nickelsburg examines whether or not the state has "lost its competitive edge" as a result of changes since the beginning of the most recent recession. Nickelsburg's conclusion: not likely.
"What we find is that the recent data on non-farm employment shows no indication of a widening gap between California and other states," he writes. "Moreover, over the last 10 years, exports through California's air and sea ports have held their own in the world marketplace."
The implication: The Forecast's outlook calls for slow, steady but unexceptional economic growth in the current year, with gradually accelerating growth in the following two years.
Nickelsburg writes that the factors that have driven California employment and income growth to higher rates than the U.S. remain in play. He says that as the world economy improves, and as investment in the U.S. improves, California will once again have a disproportionate share of the improvement.
With that in mind, real personal income growth is forecast to be 1.4 percent in 2013, followed by 3.6 percent in 2014 and 3.3 percent in 2015. Unemployment will fall through 2013 and will average about 9.6 percent this year. In 2014, the unemployment rate is expected to fall to 8.4 percent and then to 7.2 percent in 2015.
In addition to the forecast reports, the latest release by the UCLA Anderson research center includes two additional essays, one by economist William Yu and the other by senior economist Steve Oliner.
In his essay "Human Capital: The Key to Los Angeles' Long-Term Prosperity," Yu finds that Los Angeles has fallen behind other cities in terms of income and employment growth for several decades. Yu concludes that the low level of human capital is the main reason for the city's lag. He suggests that investing in early-childhood education for disadvantaged children would be the most effective way to improve Los Angeles' competitiveness in the long run.
Oliner examines productivity and potential output growth in the U.S. He concludes that "productivity growth in the United States has been anemic since 2004, due in large part to a smaller contribution from the use and production of IT capital." He adds that the financial crisis and its aftermath likely have held back gains in productivity as well.
Over the next five to 10 years, he and other analysts expect productivity growth to be somewhat stronger than the recent pace. Even so, the potential growth rate for GDP probably will be relatively slow, he says, because the retirement of the baby boomers will hold down the trend increase in labor input.
The UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the downturn in California in the early 1990s and the strength of the state's rebound that began in 1993. The Anderson Forecast also was credited as the first major U.S. economic forecasting group to declare the recession of 2001.
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