|
| Press Release |
No Recession Forecast for the Otherwise Stalled National Economy
California Slowdown Will Continue Until U.S. Economy Begins to Recover
|
| |
| |
LOS ANGELES, September 24, 2008 - In its third quarterly report of 2008, the UCLA Anderson
Forecast continues to advocate that the national economy is not technically in a recession,
noting in particular that the (revised) second quarter 2008 Gross Domestic Product (GDP)
rate was a surprisingly strong 3.3%. The Forecast readily acknowledges all of the current
problems facing the economy and, recession or not, asserts that the national economy is
“stalled.”
The California Forecast predicts an even weaker California economy with California's fiscal
crisis, and the weakness in housing and finance creating a continuing drag on California's
economic growth. The California housing market is predicted to continue its decline, along
with the associated employment in real estate-related sectors. The good news, according to
the report, is that there is evidence that even with all the negatives in the state’s economy,
there is just enough inertia to keep it “above water.”
The National Forecast
Despite a spate of bad economic news, the UCLA Anderson Forecast does not forecast a recession
in its September report nor do its economists believe the economy has already met the
requirements for a recession as defined by the National Bureau of Economic Research (NBER).
But aside from the “are we or are we not in a recession” question, the Anderson Forecast
expects “real GDP growth to be about 1% in the current quarter and essentially zero in both
the fourth quarter of this year and the first quarter of 2009.” According to UCLA Anderson
Forecast Senior Economist David Shulman, who authored the September forecast, “What we are
describing is an economy operating at its ‘stall speed’ where any modest shock can trigger
a full-blown recession.”
According to Shulman, the economy is in for a period of well below trend growth over the next
several quarters and below trend growth thereafter. Housing starts and housing prices have yet
to hit bottom, while the impact of the real estate crises continues to reverberate throughout
the financial sectors, while consumers adjust to the concept that home ownership is not a path
to instant wealth. Weakness in housing has spilled into the auto sector, which has already seen
high gas prices cripple the light truck segment. Shulman says, “the major risk facing the
economy is whether or not the consumer will buckle under the weight of falling house prices,
high energy prices and tepid wage growth.” Shuman also writes, “With luck…. the worst of the
inflation risks have passed, but the economy remains wobbly and political risks associated with
trade, tax and environmental policies are wobbling.”
With respect to the ongoing banking crisis, Shulman noted, “The Fed is in up to its eyeballs
with the major Wall Street investment banks and it will be quite awhile before monetary policy
will no longer be haunted by the risk of a systemic failure.”
In his accompanying essay, UCLA Anderson Forecast Director Edward Leamer attempts to quantify
the formula that the NBER uses to measure the economy and declare a recession. Leamer performs
an in-depth analysis of the conditions associated with prior recessions, while taking into
consideration prior literature on the topic and his newest research resulting in an algorithm
that successfully identifies all prior recessions. Notably, the algorithm does not identify
current economic conditions as a recession.
As does Shulman, Leamer states that, “at any moment we could fall into the recession abyss,”
and he admits that a future revision in the existing data could reveal that a recession as
occurred. Most importantly, Leamer writes, “We need to recognize that if this doesn’t qualify
as a recession, it surely isn’t normal growth.”
The California Forecast
In the California report, Forecast Economist Jerry Nickelsburg’s analysis is for the California
economy to be weaker than the U.S. economy, as he foresees very sluggish conditions for the state
until real estate and its associated sectors bottom out and begin to recover.
Nickelsburg’s report is particularly concerned with California’s employment situation, forecasting
that unemployment will stay in the mid 7% range next year with only modest declines the following
year. The California economy is not producing the jobs required for new entrants to the labor
force to prevent elevated levels of unemployment. “Our near term quarterly forecast has things
getting worse before better,” Nickelsburg writes. “(The Forecast is) projecting a decline in
personal income (after adjusting for inflation) in the third quarter and a -0.9% in the 4th quarter
before beginning to recover in the first quarter of 2009.”
The report says that the California economy as a whole will muddle along the balance of this year
and next and the turning point for the slowdown will depends critically on when the bottom will be
reached in construction and finance and the ultimate end of the budget gridlock in Sacramento.
|
| |
Quarterly forecast still available for purchase
--please call forecast
office directly to place your order 310-825-1623
|
|
|
