Recent tax cuts will be of little help in bringing the economy out of its slump, says Edward Leamer (right), holder of the Chauncey J. Medberry Chair in Management. Also offering their insights were Tom Lieser (left) and Chris Thornberg.
While the sluggish economy continues to limp along nationally and in California, UCLA Anderson Forecast economists see a glimmer of light ahead for Los Angeles County and Southern California.
The economic outlook for the region, state and nation were issued in reports that were released June 5 at a joint conference sponsored by the UCLA Anderson Forecast and the Richard S. Ziman Center for Real Estate.
The good news is that payroll employment in Los Angeles County will reach 4.1 million by the end of 2004, according to senior economist Chris Thornberg, with unemployment falling to 6.3%. Serious growth is being forecast for the different trade sectors, both retail and wholesale, business services, professional services and health care. And the motion picture sector is poised to add back some recently lost jobs.
“Los Angeles and its neighbors continue to be the primary source of growth in California,” Thornberg said. “The primary problem in the region remains weak external demand, but despite the current slowdown in the [national] economy, the overall forecast for Los Angeles remains positive.”
Also, the residential real estate boom isn’t expected to cool off soon in the Southland, a forecast supported by the most recently released data that show home prices are still rising as new and existing homeowners take advantage of unusually low interest rates. On the non-residential side in Southern California, new construction has slowed somewhat, but not nearly as much as commercial real estate in the northern cities.
But the news for California overall re-mains grim, with the state economy still in a recession. The state’s unemployment rate, currently at 6.7%, will remain higher than the national rate. The state rate will average 6.6% in 2004. But the state downturn will end in the third quarter of this year, predicted senior economist Tom Lieser. Realistically, the national economy should show enough strength by the end of this year to pull California along with it, he said.
With several state budget options on the table as of the report’s release, Lieser declined to make definitive predictions for the public sector. However, his mid-range estimate for 2003-04 is the loss of 50,000 new and existing state and local government jobs.
As for the national picture, where the manufacturing sector has lost 2.5 million jobs already, with no relief in sight, recent tax cuts offer little hope of pulling the economy out of its slump, said Forecast Director Edward Leamer, who refers to the cuts as “No. 1 on the Top 10 list of things that will not stimulate the economy.” Without a corresponding spending cut, the tax cut is actually a “tax postponement,” explained Leamer, with this year’s government bills being paid for with borrowed money.
For several quarters now, Leamer has said that the current stagnation is due to a lack of stimuli on the business side of the economy. In recessions past, consumers have spent the nation into recovery. But this time, with low interest rates already driving consumers to purchase next year’s houses and cars this year, there isn’t much more consumers can do. Until business investment picks up across the board, the national economy will continue to lurch along, Leamer said.
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