UCLA Anderson Forecast’s first quarterly report for 2015 for the United States economy says that the nation “looks like an island of stability in a very volatile world.”
The implication is that the U.S. is still on track for 3 percent GDP growth for the next two years, despite slow growth and currency devaluations throughout much of the rest of the developed world. Payroll employment is expected to increase at a 250,000 per month pace and the national unemployment rate will hit 5 percent by year-end. The California forecast is not much changed in the three months since the last release. Slightly weaker first and second quarters for 2015 is anticipated for California (compared to the December report), which will be offset by stronger third and fourth quarters.
For its March publication, the UCLA Anderson Forecast includes two additional research reports. The first is an examination of the labor issues that have beset Southern California’s ports, and the other looks at the entertainment industry as it relates to the Los Angeles economy. The latter report ties into the focus of the March UCLA Anderson Forecast Conference to be held March 12.
The national forecast
In his forecast for the national economy, UCLA Anderson Forecast Senior Economist David Shulman writes that a number of nation’s central banks are involved in a series of “competitive devaluations” in an attempt to export their economic weakness to the rest of the world. According to Shulman, the U.S. initiated the phenomenon in 2010; the value of U.S. dollars has risen 16 percent from the third quarter of 2014 through the first quarter of 2015. Shulman writes that for the world economy to thrive as a result of such devaluations, they must ignite global growth.
“With Europe and Japan mired in near-zero growth, the U.S. looks like an exception,” Shulman said.
Shulman said that despite weak global growth and the very strong U.S. dollar, the national economy remains on a 3 percent growth path for real GDP over the next two years that will bring the unemployment rate down to 5 percent by the end of this year. “While inflation is being temporarily suppressed by the drop in oil prices, it will soon be running above 2 percent as oil prices gradually recover,” he said.
In response to an improving labor market and the expectation of a jump in inflation, Shulman expects the Fed to begin a gradual tightening process in June. He said the near-term downside for the U.S. economy will come from a collapse in the capital spending associated with oil and gas production, while housing starts will advance more quickly than previously predicted.
The California forecast
The March California forecast calls for continued steady gains in employment through 2017.
“The increase in U.S. growth rates from construction, automobiles and business investment as well as higher consumer demand will continue to fuel our local economy,” said Senior Economist Jerry Nickelsburg, author of the California forecast. Nickelsburg said the result will be a steady decrease in the state’s unemployment rate over the next three years. He expects the state’s unemployment rate to be insignificantly different from the U.S. rate at 5.1 percent by the end of the forecast period (2017).
The estimate for total employment growth is 2.4 percent for 2015, 2.2 percent for 2016 and 1.5 percent for 2017. Payrolls will grow at about the same rate during the next three years. Real personal income growth is estimated to be 4.2 percent in 2015 and forecast to be 4.6 percent and 3.7 percent in 2016 and 2017, respectively.
The unemployment rate will hover around 6.5 percent through the balance of 2015. Unemployment will fall through 2016 and will average approximately 5.5 percent, a slight decrease from our last forecast. In 2017 an unemployment rate of approximately 5.1 percent is forecast, essentially the same as for the nation.
The California forecast report includes a deep dive into both housing and employment trends in the sixth year of the state’s recovery from the most recent recession.
For housing, recent data suggests a possible lowering of demand for housing that might portend a downturn in the market. However, the increasing number of requests for permits for new construction by builders suggests otherwise. Nickelsburg suggests that the slowdown in home sales might reflect home buyers and sellers interacting to determine where the market is going and that the increase in home building and construction hiring will slow, but not turn negative.
In terms of employment, the creation of new jobs in California is widespread across sectors. “California’s employment, even after adjusting for the impact of the slowdown/shutdown at the ports, should continue to grow faster than the U.S., though not by much, and the unemployment rate should continue to fall through the forecast period,” Nickelsburg writes.
In a companion essay, “Did Stormy Negotiations Lead to a Rainbow Over Panama? California Ports in the Aftermath of the Agreement,” Nickelsburg writes that “the short-term impact [of the port’s recent labor issues] … is assumed to be relatively small.” He writes that shippers, manufacturers and retailers will consider the costs and risks of moving supply chains from the West Coast ports after 2016, but that it is not clear they will, nor obvious they won’t, move a substantial amount of cargo eastward by ship.
The entertainment industry and the L.A. economy
In addition to the forecast reports, economist William Yu took a look at the entertainment industry and its impact on the Los Angeles economy.
He found that from 2001 to 2013, the entertainment industry in Los Angeles grew by 22 percent in terms of total employee compensation. Meanwhile, the nationwide compensation for the entertainment industry grew 33 percent and its total output by 80 percent. While the modest growth of Hollywood during this period is higher than the Los Angeles’ economy overall, the growth is lower than other star industries in other major metros, such as Silicon Valley’s high-tech sector.
Los Angeles continues to dominate entertainment production in the U.S. with an estimated economic output of $55 billion in 2013. Its employee compensation totaled $14.3 billion in 2013, much higher than New York’s $6.5 billion or San Francisco’s $1 billion. Los Angeles also has the highest percentage of the creative workforce in arts, design, entertainment, sports and media occupations.
Entertainment exports in terms of royalties continue to grow, but at a slower speed than other U.S. exports services. Yu writes that to boost exports, reducing some barriers in Asian markets is a key. Yu adds that private investment and production in the entertainment industry in Los Angeles will not only keep the city at the head of this promising and creative industry, but it will also help advance the city’s economy as a whole.
Entertainment industry trends and outlook
Shulman, Nickelsburg and Yu’s reports will be presented at UCLA Anderson Forecast's quarterly conference on Thursday, March 12. The conference will include a number of panel discussions that focus on the entertainment industry and feature a conversation between Peter Guber, the CEO of Mandalay Entertainment, and UCLA Anderson Professor Sanjay Sood. Update: Coverage of the conference.
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.