|
 |
UCLA Anderson Forecasters Predict a Short and Shallow Recession for the U.S,
Followed by a Weak Expansion; California Is Weighed Down by Weak High-Tech
Sector, But Will Turn Around by Mid-2002
|
December 5, 2001
UCLA Anderson Forecast
|
|
LOS ANGELES, December 5, 2001 – In their quarterly reports released today,
economists with the UCLA Anderson Forecast affirm that the U.S. economy is
currently in a recession that they expect to be a short and mild– turning
around by mid-2002. The Forecasters, however, maintain that unemployment will
continue to rise throughout the nation.
In his report titled "Not Long, Not Deep but Not Much of a Recovery
Either," Dr. Edward E. Leamer, director of the UCLA Anderson Forecast and
business economics professor at The Anderson School, writes that when all the
data are in, the first “official” quarter of the recession will likely be the
second quarter of 2001. Since this writing, the National Bureau of Economic
Research (NBER) has indeed named April 2001 the first month of “official”
recession.
The UCLA Anderson Forecasters first raised eyebrows with a recession forecast one
year ago (December 2000), at a time when such a pessimistic view was deemed at
best, premature and at worse, wrong, by other national forecasters. With his
year-old forecast now confirmed as accurate, Leamer turns his attention to the
future to determine what type of expansion the nation can expect after the
short, mild recession.
 Leamer’s report includes a detailed analysis of the economic imbalances, which he believes caused the recession. “The
Internet Rush from 1996 to 1999 created three fundamental imbalances. (1)
Businesses invested without profits. (2) Consumers spent as if scarcity was a
problem of the past. (3) Portfolio managers put most of their eggs in the U.S.
basket. The course of the economy in the years ahead is being determined by the
speed at which these imbalances are corrected.”
“We are in recession today because of rapid adjustment to the first imbalance,”
Leamer said. Businesses have cut capital spending dramatically in response to
very disappointing profits. Although business investment will surely bottom
out, investment is not likely to return rapidly to its Internet Rush levels
unless someone can figure out where on the Internet that the profits are
hidden. Furthermore, absent very rapid GDP growth during the recovery, there
will be a continuing excess capacity problem in tech and telecom and autos and
airlines and hotels – virtually every capacity dependent sector.”
In terms of the inevitable correction, Leamer said, “The bottom line: Expect a
recovery by mid-year 2002, but a recovery with relatively modest GDP growth,
2-3 percent, not the 4-5 percent that was characteristic of earlier
recoveries.” Despite the mid-year turnaround, the Forecast expects unemployment
to rise throughout the year.
|
California Continues to Face Downturn in High-Tech Sector
|
In a companion report titled “California: The High Tech Downturn Gathers
(Negative) Momentum,” Senior Economist Tom Lieser says that it appears that
California is also in a recession, while acknowledging that the same level of
data missing for the national economy is not yet in for California. And while
Lieser suspects that the downturn in the state began later than March, he in
unequivocal about the cause: an acute downturn in the state’s high-tech sector,
which is more severe in the San Francisco Bay area than in Southern California.
“California’s main problem … remains the downturn in high- tech, mainly information technology business which has cost
the state a significant part of its most highly compensated workers (who were
also, disproportionately, owners) in the IT business.” In addition to its
impact on California’s employment situation, the importance of high- tech goods
has also had a significant negative impact on California’s exports, which have
declined 19.5 percent in the past year, a rate far higher than the 11.2 percent
decline in the national export area.
 The Forecast suggests that the future standing of the state’s economy will depend
on the health of the national economy as the rest of the country remains
California’s best customer. If the national forecast for recovery holds, then a
recovery will take place in California as well. Naturally, an important factor
in the recovery for California will be resumption of growth in the IT sector,
which will require growth in both domestic and international sales.
Neither the national nor California outlook is materially affected by the September 11
terrorist attacks, with the exception of the hospitality sector, which has
suffered this past quarter.
The national economic forecast, along with reports on the California economy will
be presented during the UCLA Anderson Forecast conference on Wednesday,
December 5 at The Anderson School at UCLA. The program will began at 8 a.m.
with a keynote address from Yoshi Inaba, CEO of Toyota.
The UCLA Anderson Forecast is the most widely followed and often-cited forecast for
the state of California, and was unique in predicting both the seriousness of
the early-1990s downturn in California and Southern California, and the
strength of the state economy's rebound since 1993.
|
|
|
