Moderate Growth Seen in United States and California, as Recent Job Losses are
Offset by Positive Signs in Profit, Productivity and Business Investment
September 24, 2003
UCLA Anderson Forecast
LOS ANGELES The continuing loss of jobs across the United States and California,
particularly in the Bay Area, is unexpected. This bad news has been offset to some extent
by more positive reports regarding profit, productivity and business investment.
Moderate-at-best growth is forecasted for the national and state economies by the UCLA
Anderson Forecast, in their quarterly economic forecast released today.
In his most recent forecast report, UCLA Anderson Forecast Senior Economist Tom Lieser
said, The main difference between this California forecast and the previous issue
the incorporation of a weaker pattern for growth shown by recent data for the year 2003
to date. The employment reports for May through August in California showed a pattern of
continued job loss, not unlike the decline seen for the rest of the nation. Liesers article
predicts that nonfarm payroll employment numbers will show a 0.3% growth rate for California
in 2003. This downward trend will impact 2004, which will yield a meager 1.0% growth rate,
improving to 2.2% for 2005.
Personal income and taxable sales are expected to show a similar pattern of moderate economic
growth. 2003 will yield a weak 3.2%, 2004 an improving 3.9% increase and 2005 a solid 5.1%
boost for personal income. The taxable sales forecast looks much the same: a 1.7% gain in 03,
followed by gains of 4.1% in 04 and 5.0% in 05.
The forecasts for personal income and taxable sales, particularly for 2004, do not appear to
be strong enough to solve the states near-term budget problem through economic growth, Lieser
says. Fiscal year 2004 growth projections are weaker than the economic assumptions underlying
the fiscal year 2004 California budget, which was approved in August.
The National Forecast
Edward Leamer, director of the UCLA Anderson Forecast, writes that the best the country can
hope for the rest of 2003 and 2004 are GDP growth rates near 2.5%, with rates in the 3.0% 3.5%
range possible in 2005.
These growth rates fall far short of the rates seen in typical recoveries. In the past,
post-recession recoveries have seen rates in the 4.5%-5.0% range. This type of recovery could
only occur if some area of economic spending goes to super normal growth, Leamer said. In the
past, it has been consumer spending as a result of pent-up demand. This time, as we experienced
our first business cycle recession, there is no pent-up demand that could lead to sharply
increased consumer spending. Business investing has returned to normal, but it is not enough to
push the growth rate to higher levels.
The Los Angeles Report
The employment forecast for Los Angeles County remains relatively optimistic. UCLA Anderson
Forecast Senior Economist Christopher Thornberg looks for payroll employment to remain flat
for the rest of this year, with increases beginning in the first quarter of next year. Specifically,
he forecasts that the county will add 64,000 jobs in 2003 with an additional 83,000 jobs in 2005.
The strongest gains are expected to occur in business services, education and health services.
Real estate price appreciation will continue its rapid advance through the end of this year. Over
the next two years, it is forecasted that appreciation will slow dramatically.
Thornberg believes that Southern California as a whole is currently an economic leader for the
nation and the state, as those economies seek a return to normalcy.
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 states rebound since 1993. Most recently, the Forecast is credited as
the first major U.S. economic forecasting group to declare the recession of