In its fourth and final quarterly report of 2012, the UCLA Anderson Forecast says U.S. gross domestic product will grow at an annual rate of less than 2 percent through mid-2013 but will then pick up and exceed 3 percent for most of 2014, with housing activity leading the way.
Forecast economists predict unemployment will remain close to the current 7.9 percent rate in 2013 but gradually decline to 7.2 percent by the end of 2014. And inflation is expected to be above the Fed's 2 percent target by the end of the forecast period, bringing to an end the zero interest-rate policy that has been in place since late 2008.
In California, though the passage of Proposition 30 by voters creates some risk and has some impact on the forecast, the outlook for 2013 and 2014 is not much different from what the Anderson Forecast reported in September, with numbers marginally lowered for 2013, and 2014 still being seen as a year in which California's growth rate will exceed the nation's.
The national forecast
On the issue of the "fiscal cliff" — the expiration of previously enacted tax cuts, combined with spending cuts totaling about $600 billion (about 4 percent of the economy), scheduled to take effect in January 2013 — Forecast senior economist David Shulman assumes that the government's executive and legislative branches will reach an agreement before the year's end. If they don't, he writes in his report, "according to the Congressional Budget Office, the economy will fall back into recession, with unemployment returning to 9 percent late next year."
But considering the recent upward revision to the third-quarter GDP data, even if a compromise is reached, "the near-term outlook for the U.S. economy continues to be characterized by modest growth," Shulman writes. "Specifically, we are forecasting that real GDP will increase at an annual rate of only 0.7 percent in the current quarter and less than 2 percent growth in 2013's first half."
The California forecast
In his California report, Forecast senior economist Jerry Nickelsburg examines the economic consequences of Proposition 30, which he refers to as "the most important change in the Golden State" since September, when the last Anderson Forecast was released.
On the positive side, Nickelsburg writes, Proposition 30 provides a way forward in funding state investment in education and providing at least some funding for the realignment of services. On the negative side, it does not address the issues of the way in which Californians fund state government for the long run, which could make things worse rather than better.
Employment in the state is expected to grow 1.3 percent in 2013 and 2.4 percent in 2014. Payrolls will grow at 1.4 percent and 2.2 percent in those years, respectively. Real personal income growth is forecast to be 1.8 percent in 2013, followed by 3.1 percent in 2014. Unemployment will fall through 2013 and will average approximately 9.7 percent for the year. In 2014, it is expected that the unemployment rate will drop to 8.4 percent on average — a percentage point higher than for the U.S. as a whole.
In addition to the state and national forecast reports, the UCLA Anderson research center released a pair of essays by economist William Yu. One presents a picture of the high variability of credit risk among California municipalities, a phenomenon rooted in home-value fluctuations and public employee expenditures.
The other is the "First-5 LA/UCLA City Human Capital Index: 2011 Update," which looks at the education level of human capital in cities and counties across the nation in 2011. Although Los Angeles' human capital index has improved over the past several years, it still ranks near the bottom among the 30 largest metropolitan areas in the U.S.
December Forecast conference
The December UCLA Anderson Forecast Conference will be held Wednesday, Dec. 5. The conference's special topic is sovereign debt and the "fiscal cliff." In addition to presentations of the national and California forecasts, speakers and panels will address the nature of the fiscal cliff, global debt and persistent deficits at home and abroad to gain insight into the trajectory of the U.S. and California economies.
Featured speakers include Edward Leamer, director of the UCLA Anderson Forecast; David Shulman, senior economist with the Forecast; Jerry Nickelsburg, senior economist with the Forecast; William Yu, economist with the Forecast; Stephen Oliner, senior economist with the Forecast and a senior fellow at the UCLA Ziman Center for Real Estate; Greg Devereaux, CEO of San Bernardino County; Eric Hoffmann, senior vice president and manager of the California Local Government Ratings Team for Moody's Investors Service; Miguel Santana, chief administrative officer for the city of Los Angeles; and Sean C. Kraus, vice president of Credit Suisse Private Bank USA, Los Angeles.
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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