Academics & Faculty

UCLA Anderson Forecast: U.S. economy to grow tepidly in current quarter, ramp up by mid-2014

In California, coastal areas continue to lead recovery, inland areas lag

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In its fourth and final quarterly report of 2013, the UCLA Anderson Forecast asserts that the national economy is growing despite the self-inflicted wounds of the 16-day federal government shutdown and the effects of the botched rollout of the Affordable Care Act's insurance marketplace on the health care sector, which accounts for 18 percent of the economy.
 
Real growth is expected to be a tepid 1.8 percent in the current quarter, but Forecast economists predict a "sustained 3 percent growth path by the second quarter of next year." In such an environment, the economy will be on track to add approximately 200,000 jobs per month, and the unemployment rate will decline to about 6 percent by the end of 2015.
 
In California, the economic picture remains split as the gap between the coastal and inland areas widens. Along the coast — from Marin County to San Diego, including a sliver of Los Angeles County — employment gains are outpacing the nation. Over the past 12 months, Silicon Valley has created payroll employment at twice the U.S. rate. But a look inland shows a different picture: the Inland Empire and the Sacramento Delta regions are growing at a subpar rate, and the East Bay and San Joaquin Valley regions are showing little growth or negative growth.
 
The national forecast
 
In his December report, senior economist David Shulman writes that as long as the federal government does no harm, growth in the U.S. economy will be sparked by strength in the housing and automobile sectors, combined with increased business spending and an end to the dramatic drop in federal purchases. Taken together, these factors are expected to put the economy on track to a 3 percent growth path by mid-year 2014 and bring the unemployment rate down to about 6 percent by the end of 2015.
 
Policy interest rates will stay low throughout 2014, but with inflation increasing to slightly above 2 percent due to rising housing and health care costs (some coming from the implementation of the Affordable Care Act), it is expected that the zero–interest rate policy of the Fed will come to an end in the spring of 2015.
 
The California forecast
 
The California report by senior economist Jerry Nickelsburg takes another look at the split between the state's coastal haves and inland have-nots.
 
As a whole, California has just about recovered all of the jobs lost during the recent recession. In total, jobs in California — including payroll, farm and self-employed — declined by 1.065 million but rebounded by 1.044 million through October 2013. But a look at payroll jobs alone reveals that only 0.848 million out of 1.313 million lost jobs have been recovered, suggesting that Californians are creating their own jobs by starting new enterprises at faster rates than established businesses are hiring.
 
The vast majority of employment gains are found in communities along the coast, while job growth remains stagnated in inland California, which Nickelsburg loosely compares to Appalachia, a region known for no growth and low-wage jobs from 1960 through 1990.
 
Nickelsburg does note some bright spots inland, including Kern County's energy boom and the new medical school at the University of California, Riverside, which will begin to generate higher-education jobs as well as a cluster of health care–related jobs.
 
The forecast for total employment growth of 2.4 percent in 2013, 1.5 percent in 2014 and 2.0 percent in 2015. Non-farm payroll employment is expected to grow at 1.7 percent, 1.8 percent and 2.2 percent.. Real personal income growth is forecast to be 0.6 percent in 2013, followed by 3.2 percent and 3.1 percent in 2014 and 2015.
 
Unemployment will fall through 2013 and will average approximately 8.9 percent for this year. In 2014, the unemployment rate is forecasted to drop to 8.2 percent on average — more than one percentage point higher than the U.S. forecast — and then to 7.3 percent.
 
Additional report
 
In a companion piece, UCLA Forecast economist William Yu continues his examination of the First 5 L.A./UCLA City Human Capital Index, comparing all major cities in the United States. The paper then looks closely at Los Angeles County, including which areas are more prosperous and which are not and the links between economic performance and human capital level.
 
The report offers three conclusions. First, Los Angeles' human capital lags behind other major cities, though it has improved slightly in the past two years. Second, there is a tale of two cities, as certain parts of the county lead the nation in human capital while others are among the nation's worst. Finally, regions with high human capital will have higher income levels, higher home values and higher employment, while those with low human capital will see the opposite.
 
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 Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at.
 
The UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and their research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson's M.B.A., fully employed M.B.A., executive M.B.A., global executive M.B.A. for Asia Pacific, global executive M.B.A. for the Americas, master of financial engineering, doctoral and executive education programs embody the school's 'Think In The Next' ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow. Follow UCLA Anderson on Twitter at or on Facebook.
 
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