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UCLA Anderson Forecast Predicts Sluggish Growth for National Economy Through 2006
Potentially slower growth for California seen through 2006
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June 21, 2005
UCLA Anderson Forecast
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LOS ANGELES — In its second quarterly report of the year, the UCLA Anderson Forecast
suggests that the U.S. economy will experience slower than normal growth through 2006
because of weakness in housing, but not a dramatic slowdown.
The National Forecast
UCLA Anderson Forecast Director Edward Leamer says that the economy will continue to
experience sluggish growth through 2006, but that “the likelihood of a recession within
a year is minimal.”
According to Leamer and to the quarterly report authored by UCLA Anderson Forecast Senior
Economist Michael Bazdarich, the conditions for a recession are in place. For several
years now, the UCLA Anderson Forecast has been emphatic about the point that consumers’
spending rates were keeping the economy buoyant and fueling the expansion. Consumers’
ability to do this – unique among post-war economic expansions – was due in part to a
housing market that saw rapid increase in real estate values. Consumers were able to
spend, in part, due to the wealth they were accumulating in their homes.
Bazdarich, though, details the cooling off of the housing market and both he and Leamer
now believe that the days of consumer spending as a driver are in the past. Still, there
is no recession in the forecast. “Our feeling is that there are certain precipitating
events that must occur before a recession can be forecasted,” Leamer said. “And these
events have not occurred yet. The conditions are in place for a recession (such as the
cooling of the housing market and the related wealth effect), but we are not seeing evidence
that it will happen within our current forecast period.”
The California Forecast
In his California forecast, UCLA Anderson Senior Economist Christopher Thornberg highlights
the positives in the California economy, but dampens his enthusiasm with some words of real
caution.
“The California economy … has been showing very solid signs of growth. Taxable sales are
up a full 10 percent (year over year), office vacancies are falling and non-residential
investment is on the rise; the airport is humming with travelers and the ports are crowded,”
said Thornberg.
But beneath the surface, Thornberg sees troubling signs “of an economy not at the start of
a new expansion, but very near the end of an old one.” Citing the slow growth of personal
income and an imbalance in the relationship between taxable sales and wages, Thornberg
believes that California’s current economic growth is in a fragile condition. Employment
growth in the state is currently being driven by consumer demand, in turn being driven by
the wealth effect of a hot real estate market.
“Even if the real estate market doesn’t pop, the fact that it has to start cooling is enough
to slow the process down,” said Thornberg. “Prices don’t have to go negative to have an
impact, just 15 percent to zero percent is enough to start the dominoes falling.”
About UCLA Anderson Forecast
The UCLA Anderson Forecast, one of the most widely watched and often-cited economic
outlooks for California and the nation, is no stranger to accurate forecasts.
The forecasting team is credited as the first major U.S. economic forecasting group
to declare the recession of 2001. The team was also unique in predicting both the
seriousness of the early-1990s downturn in California, and the strength of the state’s
rebound since 1993.
Founded in 1952, the UCLA Anderson Forecast is one of the most widely watched and
often-cited economic outlooks for California and the nation. Award-winning for its
accuracy, the UCLA Anderson Forecast often breaks with consensus in its quarterly
forecast reports, which feature projections for major economic indicators, including
inflation, interest rates, job growth and gross domestic product growth.
About UCLA Anderson School of Management
UCLA Anderson School of Management is perennially ranked among the top-tier business
schools in the world. Award-winning faculty renowned for their research and teaching,
highly selective admissions, successful alumni and world-class facilities combine to
provide an extraordinary learning environment. UCLA Anderson students are part of a
culture that values individual vision, intellectual discipline and a sense of teamwork
and collegiality.
Established in 1935, UCLA Anderson School of Management provides management education
to more than 1,400 students enrolled in MBA and doctoral programs, and some 2,000
executives and managers enrolled annually in executive education programs. Recognizing
that the school offers unparalleled expertise in management education, the world's
business community turns to UCLA Anderson School of Management as a center of influence
for the ideas, innovations, strategies and talent that will shape the future.
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