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National Economic Recovery Will Be a Long Slow Climb
California Recovery Will Be Weaker than the Nation’s, While Los Angeles Is Expected to Recover Faster Than the Rest of the State
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LOS ANGELES, CA - June 15, 2010 - In its second quarterly report of 2010, the UCLA
Anderson Forecast makes the case for a tepid recovery from the national recession, with
unemployment levels slowly declining. The California economy is expected to grow a bit
slower than the nation’s for 2010, and slightly faster thereafter. This slow growth through
the forecast period will result in only modest inroads to the state’s high unemployment rate.
In a report focused on Los Angeles, UCLA Anderson forecast suggests that the region’s economy
will fare better than the rest of California.
The National Forecast
In a report titled, “A Homeless Recovery,” UCLA Anderson Forecast Director Edward Leamer notes
that while expansive, free-spending consumers fueled past economic recoveries, today’s “frugal
consumers” cannot be counted on to power a strong recovery for the foreseeable future. “If the
next year is going to bring exceptional growth,” Leamer writes, “consumers will need to express
their optimism in the way that really counts – buying homes and cars. And that is not going to
happen if businesses continue to express their pessimism in the way that really counts – by not
hiring workers.”
The result is an economic Catch-22. Leamer explains that significant reductions in the
unemployment rate require real Gross Domestic Product (GDP) growth in the 5.0% - 6.0% range.
Normal GDP growth is 3.0%, enough to sustain unemployment levels, but not strong enough to put
Americans back to work. As a consequence, consumers concerned about their employment status are
reluctant to spend and businesses concerned about growth are reluctant to hire.
UCLA Anderson’s forecast for GDP growth this year is 3.4%, followed by 2.4% in 2011 and 2.8% in
2012, well below the 5.0% growth of previous recoveries and even a bit below the 3.0% long-term
normal growth. With this weak economic growth comes a weak labor market and unemployment slowly
declines to 8.6% by 2012. Tepid growth leaves plenty of excess capacity, subdued pricing power
and very little inflation. This will allow the Federal Reserve to postpone interest rate increases
that the forecast expects to come late this year or early next, as the sustainability of a modest
recovery becomes clear and as the need for preemptive action against future inflation begins to
dominate monetary policy decisions.
In a companion piece regarding the current status and future for commercial real estate, UCLA
Anderson Senior Economist David Shulman says there will be a recovery in this sector, but it
will be “rocky”. “There is just too much debt that has to be worked through,” Shulman writes.
The California Forecast
Writing about California, UCLA Anderson Senior Economist Jerry Nickelsburg says the state “will
grow slower than the U.S. and a slow recovery in jobs will leave unemployment at 12.1% for the
year. The latter part of our forecast (through 2012) calls for health care, professional and
business services, exports, construction and technology-related manufacturing sectors to generate
a bit more robust growth in California.” However, Nickelsburg notes, though the state will grow
more rapidly in the following two years, job creation will not be fast enough to push the
unemployment rate below double digits until 2012. “Unlike other deep recessions, the rapidity of
the recovery, at least on the unemployment front, will be muted,” Nickelsburg writes.
The forecast for the next three years is slightly weaker than suggested in the March report. Slow
growth in 2010 is expected as government and construction continue to restructure and a reticent
consumer nationwide does not boost imports to levels that would ignite the logistics industry.
Specific to the construction sector, Nickelsburg describes a divided state, as coastal California
recovers while inland California, devastated by the collapse of the real estate market continues
to languish.
The Los Angeles Forecast
In a report titled “Emerging from Quicksand,” UCLA Anderson Economist Julia Thornton Snider writes,
“With its natural deep-water harbor, large-scale logistics industry and export-oriented manufacturing,
L.A. is well positioned to benefit from an export-driven expansion and we expect (Los Angeles) to
recover more rapidly than California as a whole.” Between L.A.’s air- and seaports and its housing
market, the evidence is building that a recovery is underway. Exports turned the tide first and
provide the most natural engine for recovery, with housing now showing signs of a recovery as well.
Job growth is the necessary next step and the Forecast says that it will start to revive this year,
although unemployment will remain painfully high through 2012. The city’s finances remain in distress
and the coming layoffs will put a drag on job growth coming from exports, logistics and manufacturing.
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