The UCLA Anderson Forecast

The UCLA Anderson Forecast Still Predicting Short-Term Sluggishness in National and State Economies
Prognosticators See End to Economic Downturn in California in the Third Quarter

June 5, 2003
UCLA Anderson Forecast

LOS ANGELES — In their economic forecasts released today, UCLA Anderson Forecast economists see no evidence to indicate any significant change in their prognostications that date back to the middle of last year. Findings were released today at a joint conference between The UCLA Anderson Forecast and The Richard S. Ziman Center for Real Estate titled, "From Global Crisis to Fragile Real Estate Markets."

In a report titled, "The Bush/Clinton Expansion of the 21st Century," Dr. Leamer identifies the manufacturing sector as part of the current economic problems, noting that this key area has lost 2.5 million jobs already, with no relief in sight. However, current national policies, such as keeping interest rates low to keep consumers spending does little to stimulate the economy. Leamer suggests what is needed is to "spoon feed some risk tolerance tonic into the tightly closed mouths of business leaders. Without some encouragement, there is no telling how long they are going to lie on the mat, flat on their backs."

For several quarters now, Leamer has pointed out that the current stagnation is due to a lack of stimuli on the business side of the economy. In recessions past, consumers have spent the nation into recovery. This time, with low interest rates already driving consumers to purchase next year's houses and cars this year, there isn't much more consumers can do. Until business investment picks up across the board, the national economy will continue to lurch along.

Tax Cuts: No Relief

One new piece of news addressed in the report is the recent tax cuts, referring to them as the "Number one on the top ten list of 'things that will not stimulate the economy.'" Leamer writes that without a corresponding spending cut, the tax cut is actually a "tax postponement," with this year's government bills being paid for with borrowed money and will ultimately come due.

In California, Senior Economist Tom Lieser would welcome even the sluggish growth Leamer continues to forecast for the nation.

In his quarterly report titled, "California: A Weak Expansion Would Be Welcome," Dr. Lieser writes that the California economy remains in recession, based on data collected through April 2003. According to Lieser, the downturn will end in the third quarter of this year, "because it is time for it to end." Realistically, the national economy will evidence enough strength by the end of 2003 to pull California along with it.

California Highlights

The state's unemployment rate, currently at 6.7%, will remain high, averaging 6.7% this year and 6.6% in 2004. Both figures are higher than the national rate.

Gains are projected in California's high-tech manufacturing later this year and throughout 2004. However, gains in jobs will be muted by companies seeking to improve profits.
With too many budget options on the table as of the report's release, Lieser declines to make definitive predictions for the public sector. His mid-range estimate for fiscal year 2003-2004 is the loss of 50,000 state and local government jobs. The 50,000 figure is arrived at by adding 10,000 projected jobs lost to the 40,000 jobs that would have been created in a "normal year." — The Los Angeles Report
If California as a whole is in recession, blame the north. The overall forecast for Los Angeles County and Southern California remains positive. The primary area of concern for the region is really demand from the rest of the state and the nation.

In a report titled, "Trouble in Paradise? Not Really …," Senior Economist Chris Thornberg forecasts that payroll employment in Los Angeles County will reach 4.1 million by the end of 2004, with unemployment falling to 6.3%. Serious growth is forecasted for the different trade sectors retail and wholesale), business services, professional services and healthcare. In other good news, the motion pictures sector is poised to add back some recently lost jobs.

Real Estate Boom Continues

The super hot residential real estate boom is expected to continue throughout the Southland, a forecast supported by the most recently released data that says home prices are still rising as new and exiting homeowners take advantage of unusually low interest rates. The building boom on the residential side continues unabated, even as things seriously cool down in the Bay Area. The non-residential side has cooled somewhat, but not nearly as much as commercial real estate has cooled in the northern cities.

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. group to declare the recession of 2001. Visit the UCLA Anderson Forecast on the Web at http://uclaforecast.com.