September 24, 2003
Moderate Growth Seen in United States and California, as Recent Job Losses are Offset by Positive Signs in Profit, Productivity and Business Investment
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 … is 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.” Lieser’s 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 state’s 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 state’s rebound since 1993. Most recently, the Forecast is credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit the UCLA Anderson Forecast on the Web at http://forecast.anderson.ucla.edu.
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