March 25, 2004

UCLA Anderson Forecast Predicts Modest Growth

Exports and Business Spending to Fuel Economic Expansion

Los Angeles — In a series of reports recently released, the UCLA Anderson Forecast suggests that increased business capital spending and, in particular, exports, will be the drivers in an expanding national economy. California's economy shows more signs of recovery, though a still-down Bay Area continues to be a drag on the state overall. In comparison, the Los Angeles County/Southern California economy is adding jobs and steadily growing.

The National Forecast
In a report titled, "Not Your Father's Business Cycle," Senior Economist Michael Bazdarich, UCLA Anderson Forecast, asserts that a true expansion has emerged in the United States over the last six months, with economic growth rapid enough to spark ongoing gains in industrial output, payroll employment and GDP. However, with the benefits of tax cuts and interest rate stimuli for consumer spending having run its course, the economy will be hard pressed to find other drivers to keep the expansion going. The most likely source of economic fuel lies in business spending and the exports sector.

Dr. Bazdarich's report references a continuing theme for the UCLA Anderson Forecast: that the recent recession was unique, due to the high levels of consumer spending and the drop off in business spending. Prior recessions were due to drop offs in consumer spending and recoveries were fueled by same. This time, business capital spending fell off and the best the economy can hope for is a return to normal growth.

After months of waiting, the UCLA Anderson Forecast now sees an upturn in business capital spending. "We expect CAP spending to continue to grow, but not soar," writes Bazdarich.

It's the exports sector, though, that has the most potential. Over the last six months of 2003, exports rose 20%. In 2004 and 2005, Bazdarich forecasts 12% growth for each year. In a bit of irony, the nation's high import rates have stimulated foreign economies to the point that demand is rising for U.S. goods abroad.

Other highlights of the national forecast include:
Steady GDP growth of about 3% through 2006, with a higher rate if exports exceed the 12% growth forecasted.
Payroll jobs will grow at 125,000 per month.
Inflation will decline to the 1-1.5% level through 2005.

The California Forecast
In an overview of the state's economy, UCLA Anderson Forecast Senior Economist Joseph Hurd states, "California's economy is moving up and out of the trough of recession. We have seen job growth for a few months … taxable sales are stronger and housing continues to be strong … both in sales and construction."

Dr. Hurd cautions that the economy still must confront state budget cuts that will reduce public sector jobs by 25,000 over the next 15 months, surging gasoline prices and a weak dollar, which make imports more expensive, and high household debt, which will limit new purchases of cars and other durables for the foreseeable future.

Highlights — and lowlights — of the California economy include:

  • The strongest sectors of the economy are education and health services and finance. Both areas expanded by about 10% over the last three years. A growing senior citizen population will continue to stimulate health care growth, while biotech surges in areas like preventative medicine. Financial activities growth is tied to the still hot real estate market.
  • The housing market will remain strong throughout the forecast. Low mortgage rates continue to fuel the resale market, while strong growth in homebuilding will ease some of the upward pressure on home prices.
  • On the weaker side of the economy, information and telecommunications lost 23% of its payroll jobs in three years. It will rebound slightly, but remain weak. Durable and nondurable manufacturing is down more than 400,000 jobs since 2000, but growth in this area is at least one year away.
  • Despite the passage of Propositions 57 and 58, California must still cut about $12 billion from its fiscal 2004-2005 budget. Hiring freezes and cuts should cost the state about 25,000 jobs in state and local government.

The Los Angeles Forecast
While jobs are returning to the Los Angeles County/Southern California region, problems in manufacturing, California's business costs and an expected slowdown in consumer spending point to a period of modest growth in 2004.

In a report titled, "The Los Angeles Report: Doctor, We Have a Pulse," UCLA Anderson Forecast Senior Economist Christopher Thornberg forecasts 1.2% payroll job growth in Los Angeles County in 2004, with Orange County slightly higher, while San Bernardino and Riverside Counties remain the primary areas of growth in Southern California.

Highlights of the Los Angeles Forecast include:

  • Job growth will be concentrated in services, primarily professional and business services, healthcare and leisure and hospitality.
  • Taxable sales will grow at a 4% pace in 2004 as weaker consumer spending offsets payroll growth employment.
  • Housing prices will continue to rise, but after the end-of-the-year surge fueled by buyers panicked to take advantage of low interest rates, houses will appreciate at 6-7%, maybe lower, in 2004.

About The 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. For more information visit http://uclaforecast.com

Contact Information

Media Relations, (310) 206-7707, media.relations@anderson.ucla.edu

Media Relations