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National Economic Growth Won’t Be Strong Enough to Rapidly Reduce Unemployment Rates
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 - September 15, 2010 - In its third quarterly report of 2010, the
UCLA Anderson Forecast calls for “very sluggish growth” for the foreseeable future as the
United States’ economy continues to recover from the recession that plagued the nation
earlier in the decade. As for the California economy, the State is looking at a difficult
period ahead as it attempts to generate not only the 1.3 million jobs lost during the
recession, but also the additional jobs needed for new entrants into the job market
over the past two and a half years.
The National Forecast
In a report titled, “The Uncertain Economy,” UCLA Anderson Forecast Senior Economist David
Shulman offers two explanations for the ailing national economy. The first is the “balance
sheet hypothesis” the Forecast put forth almost two years ago and is analogous to the
work done by economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff
of Harvard University, who noted that recoveries from the bursting of debt-fueled
financial bubbles are invariably slow and are associated with high unemployment rates
and rising government debt. Given that, Shulman suggests that a quick recovery is not
likely.
But Shulman also writes that, “the recovery from the balance sheet recession is being
exacerbated by an extraordinary increase in policy uncertainty which is amplifying the usual
economic uncertainties associated with recessions.” Simply put, Shulman believes that the
nation’s businesses are unsure of implications of their investments, whether they are new
hires or new computers, given the uncertainty surrounding tax, environmental, energy,
financial, labor and healthcare policies. “At present, business firms can only make the
wildest guesses as to what corporate and individual taxes will be next year,” Shulman
said, “and for that matter three years from now, what the cost of healthcare will be,
whether or not there will be a revived cap and trade policy with respect to carbon
emissions or whether the Environmental Protection Agency will step in with regulations
of their own absent a statue and whether it will be easier or more difficult to hedge risks
with financial derivatives.”
Given these factors, the UCLA Anderson Forecast expects very sluggish growth accompanied by high
unemployment. “As time passes,” Shulman said, “the economy will naturally heal and the policy
uncertainties will resolve themselves to allow growth to return to a 3% path causing unemployment
to begin a long awaited downward trajectory. We forecast that these more ebullient trends will
become noticeable by 2012.” The Forecast calls for the unemployment rate to be 9.7% by year’s
end and 9.5% in 2011.
The California Forecast
Writing about California, UCLA Anderson Forecast Senior Economist Jerry Nickelsburg writes that
“all the evidence suggests that California is ever so slowly coming out of the recession … but,
slow growth means that while the groundwork for faster growth is being put down, there is not a
lot or perceptible change.”
The Forecast implies that the weak growth will continue in the absence of any imminent changes
in consumer or business behavior. According to the report, the very slow growth period will remain
until next year. The recovery from the recession will be driven by education, healthcare, exports
and technology and to a lesser extent growth in the battered residential construction sector.
About UCLA Anderson Forecast
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.
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