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UCLA Anderson Forecast: On the Road to ‘Normal’?
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LOS ANGELES (September 12, 2013) -- In its third quarterly report of 2013, the UCLA Anderson Forecast’s outlook for the United States asserts that the U.S. economy is “returning to normalcy.” And while the economy will not be “normal” by historical standards, it will be noticeably better than in recent years. To wit, after growing at a now revised 2.5% growth rate in the second quarter of 2013, the UCLA Anderson forecasts real GDP growth of 2.5% for the rest of the year, before rising to the historical 3% growth rate in 2014 and 2015.
In California, the state’s economy continues to mirror the slow growth of the nation. The forecast calls for total employment growth – including payroll, farm and the self-employed – of 2.7% in 2013 and 2.1% and 2.1% in 2014 and 2015 respectively. Nonfarm payroll employment will grow more slowly at 1.7%, 1.9% and 2.2% for the three forecast years.
The National Forecast
In the September Forecast report, UCLA Anderson Forecast Senior Economist David Shulman writes that while the economy is returning to normal, it is still operating well below what would have been expected prior to the most recent recession. As an illustration, Shulman cites a report from Sentier Research that notes that the current median household income is lower than it was in June 2009, the ending month of the recession.
In an essay titled, “Returning to Normalcy, Sort of” Shulman says that payroll employment growth will be a sustained 200,000 jobs per month through 2015 and that the unemployment rate will steadily fall to 6.5% by the end of the forecast period. In the near-term, the adjustments business firms will make as a result of the implementation of the Affordable Care Act could negatively affect the quantity and quality of the net increases in employment, as firms possibly convert full-time employees to part-time and smaller businesses limit their headcount to 50 full-time employees.
The forecast continues to believe that the housing recovery is underpinned by a five-year period of underbuilding, rising household formations, an improved employment and still-low-by-historical-standards mortgage rates. As to the latter, the fear of higher rates in the future makes the current rate environment more attractive to buyers. The result is a forecast that calls for housing starts to increase to 965,000 units this year, compared to 783,000 last year. This is actually a reduction from previous forecasts, due to a slower ramping of production than originally envisioned.
The forecast calls for a return to normal growth on the order of 3% in 2014 and 2015, a percentage point higher than the 2% growth rate the economy has experienced since the recession ended. The forecast also calls for an end to the very low interest rates we have become accustomed to the past few years. While a resumption of normal growth is a good sign, Shulman does caution that it will not be enough to restore the economy back to its pre-recession growth path.
The California Forecast
The California forecast report, authored by Senior Economist Jerry Nickelsburg, examines the recovery in employment in California, both by geography and sector. The economic news coming out of California is relatively bright when compared to the rest of the United States, but the state is not participating in the recovery equally. Rather, the California economy is divided both by geography and skill class.
In a report titled, “Where are the Jobs, California,” Nickelsburg notes that the coastal economies in California that are driven by investment, technology, and trade have outperformed the U.S. Conversely, the inland economies driven by migration, construction and government have stagnated. The data from the past 12 months reveals a similar pattern to that of the previous three years. Employment in the Bay Area, Orange County, San Diego and Ventura has consistently grown at a faster rate than the U.S. Los Angeles and the Mid-Coast, after a slower start, have seen employment growth at about the anemic national rates. But the Sacramento Delta, San Joaquin Valley and Inland Empire, absent the primary drivers of economic growth, continue to fall further behind the rest of the state.
Viewed through the prism of skills, California continues to add jobs, but only a few sectors are taking off. This, Nickelsburg says, is the fly in the ointment of the state’s recovery. Californians who invested in and developed skills in the growth sectors of the 20th Century economy are now finding that some of those same skills are not applicable to the 21st Century economy. Those sectors which are producing the job growth in California now require a different set of skills. While a larger proportion of the inland workforce is impacted by this structural change, coastal communities are affected as well. For example, prior to the recession of 2008/2009, Los Angeles employment was relatively diversified across employment sectors. Now, some parts of the county are doing quite well, others quite poorly, which is generating aggregate economic data that is mixed at best.
Real personal income growth is forecast to be 1.9% in 2013 followed by 3.3% and 3.3% in 2014 and 2015. Unemployment will fall through 2013 and will average approximately 8.9% for this year. In 2014 we expect the unemployment rate to drop to 7.9% on average, three percentage points higher than our U.S. forecast and thence to 6.9%.
In a companion piece titled, “The Evolution of Human Capital, Workforce, and Innovation in Los Angeles over the Past Two Decades,” UCLA Anderson Economist William Yu provides an update to the human capital index research he has been conducting for the past year. Among his conclusions are that L.A.’s human capital has been falling behind other major cities, at a time when other major cities have seen theirs rise; that a high level of human capital will predict high levels of income and is correlated with high innovations; and that an investment in the early childhood education of disadvantaged children could be one of the most efficient and effective ways to achieve vibrant growth and shared prosperity in our city.
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.
About UCLA Anderson School of Management
UCLA Anderson School of Management, established in 1935, is regarded among the very best
business schools in the world. UCLA Anderson faculty are ranked #1 in "intellectual capital"
by BusinessWeek and are renowned for their teaching excellence and research in advancing
management thinking. Each year, UCLA Anderson provides management education to more than 1,600
students enrolled in MBA, Executive MBA, Fully-Employed MBA and doctoral programs, and to more
than 2,000 professional managers through executive education programs. Combining highly
selective admissions, varied and innovative learning programs, and a world-wide network of
35,000 alumni, UCLA Anderson develops and prepares global leaders.
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