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California Job Growth to Continue Says UCLA Anderson Forecast
Forecasters See No Evidence to Support Nation's 8.2 % GDP Figure
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December 11, 2003
UCLA Anderson Forecast
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Los Angeles — In a series of reports released today, the UCLA Anderson Forecast predicts
California's economy will experience increased job growth in 2004 and 2005. However, this
growth will be limited and unevenly distributed throughout the state's various regions.
Additionally, forecasters heed caution for the nation's 8.2 % GDP figure for third quarter
2003.
The California Forecast
In an overview of California's economy, Senior Economist Tom Lieser states, "With stimulus
coming from the improving national and world economies through 2004 and 2005, (nonfarm)
employment is forecasted to increase 0.9% in 2004 and 2.1% in 2005." This limited expansion
in California's forecast will bring the state's unemployment rate down to 6.5% in 2005. Put
in perspective, the rate was 4.9% as recently as 2000.
California's job gains will be concentrated in the services sector, particularly newly
recombined Education and Health services sector, which, with more than a decade of steady
growth, has experienced uninterrupted expansion longer than any other sector. Information
services declined for ten consecutive quarters but began adding jobs in the third quarter of
2003 and is expected to continue to do so, albeit at a pace well-below the 11.2% seen in 2000.
Growth has resumed in professional and business services as well.
In contrast to the services sector, the manufacturing sector remains problematic for California.
The steep decline in manufacturing in the state has slowed, but no new hiring is yet apparent.
Most of the jobs lost in manufacturing will not return, particularly production jobs. By 2005,
the UCLA Anderson Forecast expects to see modest new hiring in this area, but total employment
in manufacturing will be lower than it is today.
Taxable sales in California are the best proxy for consumer spending in the state and 2003
should ultimately be a positive surprise when all data are in. With improved growth in employment
and earnings in 2004, look for an increase in sales growth of 5.0% in 2004 and 4.9% in 2005.
Real estate prices should continue to rise in California, assuming mortgage rates remain
"reasonable;" single digit rates are most likely over the next two years.
The National Forecast
Despite an unexpected 8.2% GDP figure for third quarter 2003, the UCLA Anderson Forecast stays
the course with its national report and predicts acceptable growth rates in employment, but not
at a rate that drives down unemployment significantly.
In a report titled, "The Twilight Zone Economy," authors Edward Leamer, director of UCLA Anderson
Forecast, and Michael Bazdarich take a close look at the 8.2% figure, but find no evidence in the
rest of the economic data to support it. They warn the 8.2% growth creates greater uncertainty
for next year's outlook and suggests, "For inventory decisions, the greater uncertainty calls for
higher stocking levels to limit the chance of a stock outage." They also advise, "lower revenue
forecasts to limit the chance that spending commitments are made that cannot be lived up to."
California Regional Forecasts
Supplementing the California (and national) report(s), the UCLA Anderson forecast is simultaneously
releasing three regional reports for California.
Los Angeles Forecast
The Los Angeles economy failed to show any significant signs of improvement since the slump experienced
in fourth quarter 2002 and first quarter 2003. Unemployment remains at 6.9% and payroll employment is
stuck at just over 4 million jobs. Worker earnings in manufacturing and construction in the county remain
flat.
Senior Economist Christopher Thornberg believes that the Los Angeles County economy is in "better shape"
than recent data indicates. "While LA had continued to lose jobs recently, its neighboring economies
have begun to add them again, particularly in the Inland Empire and Orange County. Strong growth around
Los Angeles will lead to increased demand for services produced here," said Thornberg.
The outlook for Los Angeles County has not changed substantially since the group's last report in
September 2003. Payroll employment is still expected to increase by 40,000 jobs in 2004 and 80,000
in 2005. Manufacturing and trade will be areas of weakness, while state and government hiring will
rise despite budget problems.
Thornberg's analysis includes an examination of local current events, including the wildfires of last
fall and the MTA/Grocery strikes. While he acknowledges the difficulty experienced by those directly
impacted by the fires, the overall impact to the regions economy was mild. The cost of the fires - $1.5
to 2 billion dollars - was only a fraction of the impact of the 1994 Northridge Earthquake and the quake
had little impact on the overall economy. The wildfires may lead to some short-term declines in current
hiring.
The MTA strike lasted little over a month and other than the inconvenience experienced by users of mass
transit, will have little other impact, other than to discourage people from relying on public transit
at a time when the County is attempting to increase ridership to reduce freeway traffic. The grocery
strikes are more significant from a numerical standpoint than the MTA strikes. Up to 30,000 workers are
on picket lines, representing one half or one percent of the total workforce, decreasing the buying power
of impacted families. With no end in sight, the final impact is yet to be felt.
Inland Empire and Bay Area
Reports on the Inland Empire and Bay Area, written respectively by Michael Bazdarich, director, UC Riverside
Forecasting Center, and Joseph Hurd, senior economist, UCLA Anderson Forecast, present a tale of two regions
representing the best of times and the worst of times. In the Inland Empire (San Bernardino and Riverside
Counties) job growth continued on a steady pace throughout the recession and modest recovery and a stronger
national economy will only spur stronger growth in the coming years.
The Bay Area (including San Francisco, Oakland and San Jose) reveals the opposite. Since the end of 2001,
the Bay Area has lost 337,000 jobs. However, California has had a net increase of 51,000 jobs as a whole
during that same period, netting a statewide loss of 286,000 jobs overall. According to Hurd, these figures,
"make it as plain as possible that the recession was a Bay Area event." Hurd says that a rapid recovery for
this region is unlikely, due to weakness in the housing market, the state's budget problems and irreversible
losses in manufacturing.
About UCLA Anderson Forecast
The 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. Most recently, the Forecast is credited as the first
major U.S. economic forecasting group to declare the recession of 2001.
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