UCLA Anderson Forecast predicts slow economic growth at state, national levels this year
By Elise Anderson September 20, 2012 Category: Research
In its third quarterly report of 2012, the UCLA Anderson Forecast predicts that gross domestic product growth in the U.S. will remain tepid throughout 2012, with 1.3 percent growth in the third quarter of this year and 1.5 percent in the fourth.
For 2013, the outlook is for growth above 2 percent, but 2014 "could very well put the run-rate of GDP growth in excess of 3 percent, as economic activity is buoyed by strength in residential and nonresidential construction and a rebound in export growth," the Forecast states.
The California forecast reflects the national forecast, with continued but slightly slower gains in employment through 2012 and faster-paced growth throughout the forecast period, which runs through 2014. This uptick in growth will result in a breakthrough to single-digit unemployment.
The national forecast
In his national report, UCLA Anderson Forecast senior economist David Shulman refers to current conditions in the U.S. as "the muddle-through economy," noting that the economy continues to limp along at a very sluggish pace, as it has since the low point of the "Great Recession," in mid-2009. Shulman notes that real GDP growth has been in the 1 to 3 percent channel and is now operating at the lower end of that range.
Shulman says this tepid growth, combined with a structural adjustment in the economy, has caused employment gains to be modest, resulting in an unemployment rate above 8 percent for three-and-a-half years.
"With several quarters of 1–2 percent growth ahead of us, we do not expect the unemployment rate to dip below 8 percent on a quarterly basis until the first quarter of 2014," he writes. "Simply put, job growth on the order of 160,000 a month in 2013 will not be sufficient to make any real dent in the unemployment rate. However, as job growth accelerates to 200,000 a month in 2014, the unemployment rate will begin to meaningfully improve."
Shulman's optimism about 2013 and 2014 is buoyed by what he calls "the lone bright spot in the economy" — the long-awaited rebound in housing construction.
"Led by multi-family construction," he writes, "housing starts are ramping up, from 612,000 units in 2011 to 763,000 units this year and just under 1 million units in 2013. By 2014, we anticipate that housing starts will be in excess of 1.3 million units and the growth in housing will account for about a full percentage point in GDP growth by 2014."
Shulman says the strength in housing is underpinned by gradually rising home prices, record low mortgage rates, improved household formations and modest employment growth.
On the flip side, Shulman warns that if Congress and the president fail to agree to an end-of-year compromise on taxes and spending, the economy could fall off the "fiscal cliff," leading to a downturn in 2013.
The California forecast
In the California report, senior economist Jerry Nickelsburg examines how the state's exports and export volumes affect employment growth in the state. Noting the importance of exports to the California economy — if exports of goods were an independent sector, he says, it would be one of the state's top five — Nickelsburg's analysis reveals that "while California's exposure to the international economy is substantial, the sensitivity of the California economy to international risk is only marginally above the national risk."
The current California forecast calls for the state's unemployment rate to be at 7.9 percent (within 0.4 percent of the U.S. rate) by the end of the forecast period and predicts employment growth of 1.8 percent in 2012, 1.6 percent in 2013, and 2.4 percent in 2014.
Payrolls will grow more steadily, at 1.7 percent, 1.5 percent and 2.3 percent for the three forecast years. The unemployment rate will hover around 10.7 percent through 2012 and average 9.8 percent throughout 2013. In 2014, Nickelsburg says, the state's unemployment rate will drop to 8.5 percent, just shy of 1 percent greater than in the U.S. as a whole.
The end of China's economic marvel
In a companion essay to the two forecast reports, UCLA Anderson economist William Yu discusses economic conditions in China. In his essay "The End of China's Economic Marvel," Yu says that a prediction the Forecast made last December about China's economy has proved true.
"We predicted that China would experience a 'hard landing' and expect that it will be worse than the free-fall in the 2008 financial crisis because their stimulus medicine will not work this time," Yu writes.
He anticipates that China's hard landing will be ongoing through 2013 and that the country's three decades–long period of rapid growth will end in 2012.
Yu explains that the structural change in China's economic growth was both natural and inevitable; that if China continues its current investment spree, it will delay — but exacerbate — the hard landing in 2013 and 2014; that growth in Chinese consumption is the key to avoiding long-term stagnation; and that a decline in China's GDP growth from 10 percent to 5 percent will result in a growth reduction in U.S. GDP of only 0.2 percent.
September Forecast conference
The September UCLA Anderson Forecast conference will be held Thursday, Sept 20. "Presidential Economics: Does It Matter?" will be the special topic.
In addition to presentations of the national and California forecasts and a look at current economic conditions in China, conference speakers will examine the potential effects of the upcoming presidential election: Will the results of the election affect the state and national economies, employment growth, the growth gap, and California and local government budgeting?
Featured speakers will include California Controller John Chiang; Kip Hagopian, co-founder of Brentwood Associates, managing Partner of Apple/Oaks Partners LLC, and chairman of the board of Maxim Integrated Products; Long Beach Mayor Bob Foster; Dr. J. Thomas Rosenthal, chief medical officer for the UCLA Hospital System, associate vice chancellor at the David Geffen School of Medicine at UCLA, and professor of urology; and Steven A. Olsen, vice chancellor and chief financial officer at UCLA.
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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