UCLA Anderson Forecast: Economy growing, but 'no recovery in sight'
In California, slow growth predicted through 2011, with high unemployment
By Hilary Rehder June 15, 2011 Category: Research
In its second quarterly report of 2011, the UCLA Anderson Forecast acknowledges a steadily growing gross domestic product but says current growth falls short of the levels necessary for a true recovery in the national economy.
The California forecast echoes and reinforces the March 2011 forecast, calling for slow growth through the end of the year as the state attempts to regenerate the 1.3 million jobs lost in the recession while also finding work for new entrants into the labor force.
The national forecast
In his June 2011 report, UCLA Anderson Forecast director Edward Leamer predicts "normal growth" for the U.S. economy through 2013, defined as "3 percent GDP growth with payrolls growing at 150,000–200,000 per month and unemployment stuck at high levels." But "normal" does not mean a recovery, Leamer stresses.
In his report, "No Recovery in Sight," Leamer differentiates between normal growth and the type of growth necessary for real recovery, explaining that in a recovery, the economy would experience "5–6 percent growth with payrolls growing at 250,000–300,000 per month and unemployment falling noticeably."
He notes that a recovery is not simply a matter of the economy returning to where it was when the recession began but rather a return to trend — a matter of the economy getting to where it would have been had there been no recession. That, he says, requires more than 3 percent GDP growth.
Leamer identifies the personal consumption expenditures segment of GDP as a key sector preventing normal growth from rising to the level of a recovery, with the housing and automobile sectors the major culprits. "This economic illness," he writes, "is concentrated in the postponable components of GDP: home building and housing services, consumer durables and transportation services, and producer durables."
In sum, Leamer says, until consumers start buying homes and cars, the recovery will remain in the future.
On the employment front, Leamer believes that a robust job recovery is prevented by permanent displacements of millions of workers, whose jobs are now performed by a combination of technological advances and low-wage foreign workers, along with the loss of construction and retail jobs that are not likely to return.
"We have as many as 5.5 million workers who are permanently displaced and only about 3 million that are likely to be recalled," he says. "That's a tough problem which is largely unresponsive to the fiscal and monetary medicine we have been taking. It is likely to take a very long time for those 5.5 million displaced workers to find jobs again, and in the meantime the economy will grow, but not as robustly as in traditional recoveries when the recalls were almost 100 percent."
The California forecast
California's forecast remains substantially the same as it was in March, according to senior economist Jerry Nickelsburg, characterized by a continuing period of slow growth with stress in the labor markets.
In his report, "A Breather in the Process of Recovery," Nickelsburg cites two key elements impeding California's recovery: slower growth in consumer spending and a shift occurring in the residential construction sector.
The state forecast predicts 1.7 percent employment growth in 2011, 2.4 percent in 2012 and 3.1 percent in 2013. Unemployment will continue to fall through the year, averaging 11.7 percent in 2011. Employment growth won't push the unemployment rate below double-digits until the second quarter of 2013, reaching 9.2 percent by the end of that year. Real personal income growth is forecast to be 1.7 percent in 2011, 3.3 percent in 2012 and 3.8 percent in 2013.
The shift in residential construction is rooted in demographics and geography, Nickelsburg notes, with the 2010 U.S. Census showing a significant shift in demand toward condominiums and apartments. As a result, he says, future construction will move towards multi-family units. This hurts inland California in three ways. First, workers are less likely to move inland into an apartment and commute toward the coast. Second, fewer construction workers are required to build multi-family units. And third, the inland areas of California are more dependent on construction to fuel the regional economy than coastal areas. Taken together, Nickelsburg says, these shifts are going to be a significant drag on inland California economies, which in turn will become a drag on the state's economy as a whole.
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 early-1990s downturn in California and the strength of the state's rebound since 1993. More recently, the Anderson Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001.
The UCLA Anderson School of Management, established in 1935, is regarded among the leading business schools in the world. UCLA Anderson faculty are ranked No. 1 in "intellectual capital" by Business Week and are renowned for their teaching excellence and research in advancing management thinking. Each year, UCLA Anderson provides management education to more than 1,600 students enrolled in M.B.A., fully-employed M.B.A., executive M.B.A. and doctoral programs, and to more than 2,000 professional managers through executive education programs. Combining highly selective admissions, varied and innovative learning programs, and a worldwide network of 37,000 alumni, UCLA Anderson develops global leaders.