UCLA Anderson Forecast Continues to Warn of Slow Growth for National Economy
“Soft Landing” Expected for Both California and Los Angeles
September 28, 2005
UCLA Anderson Forecast
LOS ANGELES — In its third quarterly report of the year, the UCLA Anderson Forecast
stays the course and continues to forecast that the US economy will experience slow
growth through 2006. However, the slowdown is now considered to be more gradual than
predicted in June as the projected reduction in housing construction is still in the
future. In California, there are hopes for a “soft landing” as the economy weakens
over the next two years. Locally, the Los Angeles forecast mirrors that of California,
as a number or risk factors including payroll employment and residential real estate
pose a threat to the moderate growth currently being experienced.
The National Forecast
In the latest forecast report, UCLA Anderson Forecast Senior Economist Michael Bazdarich
modifies slightly the stance the group took in June. Three months ago, the group forecasted
“substantial declines in U.S. housing construction starting in late-2005” and that they
“expected these declines to drive a noticeable deceleration in U.S. economic growth in
the last half of 2005 and after.” Consumer, business and government spending were also
expected to decline.
Dr. Bazdarich now notes that there has been no decline in housing construction yet
evidenced in the data; rather they have been flat. Still, the forecast expects these
declines are still on the horizon and while the drop-off in housing construction has
yet to occur, declines in consumer and business spending is happening at a faster rate
than was expected three months ago. On the plus side, U.S. foreign trade trends are
showing signs of turning for the better.
The overall forecast has been slightly upgraded from June. Dr. Bazdarich writes, “ …
the bottom line is that an improving trade deficit will work to mitigate the economic
drag coming from slowing spending growth and, next year, declining housing activity.
Our June forecast looked for U.S. growth to fall into the 1% - 2% range next year. With
slowing consumer and business spending growth hitting import sectors hardest, even a 20%
decline in housing starts over the next two years will work to push economic growth only
to the mid-2% range.” He does caution, however, that an abrupt plunge in housing starts
and housing prices – a bursting of the housing bubble – could still drive a slump.
The California Forecast
In his California forecast, UCLA Anderson Senior Economist Christopher Thornberg notes
that the California economy “seems healthy on the surface” but below the surface there
is no encouraging news.
The California economy, like the national economy, is being driven in part by the housing
sector and consumer spending (which is being fueled by the wealth home owners are feeling.
While these sectors continue to fuel growth, core California sectors like information,
manufacturing and professional services continue to languish.
Dr. Thornberg says that, “The forecast for California is mediocre at best, at worst we are
liable to dip into another recession.” He admits that the research group has not been able
to time the end of the real estate bubble. His current forecast is for a “soft landing,”
one in which the economy sees weak growth for the next two years, but no recession.
The Los Angeles Forecast
Mirroring the forecast for the state, the UCLA Anderson Forecast says the Los Angeles area
will avoid a crash and experience a “soft landing” similar to the rest of California.
UCLA Anderson Senior Economist Ryan Ratcliff says that, “any trouble in real estate markets
is more than six months out, so our forecast is for a slowdown in housing in early 2006,
leading to a broader economic slowdown in 2006-2007. At this time, there is not enough
evidence from our leading indicators to suggest that this slowdown will become a full-blown
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
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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