March 09, 2011

UCLA Anderson Forecast Says National Economy is "On The Mend" as GDP Grows Steadily and Payroll Employment Increases

Slow growth expected in California through 2011 as jobs slowly return

LOS ANGELES -- In its first quarterly report of 2011, UCLA Anderson Forecast is cautiously sanguine regarding the national economy, as real Gross Domestic Product (GDP) continues to grow at a steady pace and employment continues to increase. That said, the recovery in the U.S. economy is still slow - and the recession cut jobs so deeply - that growth will be insufficient to surpass the employment peak reached in early 2008 within the boundaries of the current forecast, which runs through the end of 2013. The California forecast is slightly weaker in the near term that it was in December with the unemployment rate predicted to be substantially above the U.S. rate at the end of 2013.

The National Forecast
In a report titled "On the Mend," UCLA Anderson Forecast Senior Economist David Shulman says, "The U.S. economy is getting better. Slowly, in fits and starts, real GDP is growing and employment is increasing." With that, the Forecast calls for real GDP growth of 3.8% in the current quarter, with 3% growth expected for the duration of the forecast's 2013 horizon. The Forecast also calls for payroll employment increases of 1.9 million in 2011, 2.6 million in 2012 and 3.0 million in 2013. But, as above, these increases in employment will not bring the U.S. back to the employment peak of first quarter 2008.

According to Shulman, the economy is being propelled by strong increases in corporate spending and software and that the impetus for this spending is coming from extraordinarily low interest rates, a rapidly recovering stock market and investment incentives coming out of Washington D.C. "Indeed," Shulman writes, "independent of policy, investment is being spurred by technological advances in wireless and cloud computing along with new natural gas drilling and technologies that are reshaping the nation's energy map. As a result, the real business investment share of GDP will increase from 12.8% in 2010 to 15.4% in 2013." Exports and the automobile sector are also spurring the recovery, the latter a rebounding as pent-up demand spurs new car sales. Housing (unlike autos, houses wear out slowly and don't need replacing as often) and state and local government lag other growing sectors. The forecast calls for only modest growth in housing starts this year, though an improving employment sector will push housing starts to 1.5 million (up from 586,000 in 2010) in 2013. Shulman also notes there is a "whiff of inflation in the air" as commodity prices rise and that interest rates are expected to rise - both factors that could slow the national economic recovery. "Because inflation will be higher than what the Fed now thinks the Fed will end its zero interest rate policy in early 2012, and 10 year Treasury Bond yields will soon normalize at rates above 4%," Shulman states.

The California Forecast
California's forecast, authored by Senior Economist Jerry Nickelsburg, reflects the mixed signals emanating from the State's economic data. Job creation in California remains sluggish. Nevertheless, California's unemployment rate is predicted to be substantially above the U.S. rate at the end of 2013. The forecast actually calls for slower growth than was expected in the December report and that near term slow growth means the unemployment rate in California will remain at 10.5% next year. The latter part of the forecast (though 2013) calls for health care, professional and business services, exports, and technology-related manufacturing sectors to generate more robust growth. "Job creation," Nickelsburg writes, "though more rapid in late 2011 and in 2012 and 2013, will not be fast enough to push the unemployment rate below double digits until the start of 2013."

The drivers of the recovery in California will be education, health care, exports and technology, as well as residential construction. The expectation for 2011 is a growth in employment of 1.1%. The bulk of this growth will obtain in the latter part of the year. The end of year growth will be slightly faster than the U.S. as increases in U.S. consumption levels will be magnified in California's logistics industry and increases in exports to the growing economies of Asia will disproportionately affect California. Employment growth is expected to speed up in 2012 and 2013 as the recovery takes hold. Real personal income growth is forecast to be 1.3% in 2011 and 3.7% and 4.1% in 2012 and 2013 respectively. The unemployment rate has been stuck between 12% and 13% throughout this year. Employment growth in 2011 and 2012 will only push unemployment down marginally and we do not expect it to reach 9.7% until the 1st quarter of 2013 and we expect the unemployment rate to remain elevated at 8.9% through 2013.

About UCLA Anderson Forecast
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. More recently, the Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at http://uclaforecast.com.

About UCLA Anderson School of Management
UCLA Anderson School of Management, established in 1935, is regarded among the very best business schools in the world. UCLA Anderson faculty are ranked #1 in "intellectual capital" by BusinessWeek and are renowned for their teaching excellence and research in advancing management thinking. Each year, UCLA Anderson provides management education to more than 1,600 students enrolled in MBA, Executive MBA, Fully-Employed MBA and doctoral programs, and to more than 2,000 professional managers through executive education programs. Combining highly selective admissions, varied and innovative learning programs, and a world-wide network of 35,000 alumni, UCLA Anderson develops and prepares global leaders.

Contact Information

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

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