Jerry Nickelsburg

May 21, 2012

UCLA Anderson Forecast has "Curbed Enthusiasm" Over Employment Data

Two Percent GDP growth projected through 2012

LOS ANGELES -- In its first quarterly report of 2012, the UCLA Anderson Forecast remains cautious about overzealousness regarding the national economy while acknowledging an improving employment situation, with more than half a million jobs created in the first two months of the year. With the proper restraint in mind, the Forecast projects a modest two percent growth in gross domestic product (GDP) through the rest of the year.

California will likely see continued slow, steady gains in employment through 2012, with the rest of the country and the state's international trading partners generating faster growth in 2013 and 2014. The Forecast calls for a steady decrease in the California unemployment rate over the next two years, following a slow trajectory towards single-digit unemployment by the end of 2013 and reaching 7.7 percent by the end of 2014.

The National Forecast
In his March 2012 report, UCLA Anderson Forecast senior economist David Shulman cites temperatures in most of the country averaging 5 to 6 degrees above normal in January and February 2012 as a key factor in the recent improvement in the labor market, with 227,000 and 284,000 net new payroll jobs created in those months, respectively.

In an essay titled "Curb Your Enthusiasm," Shulman details how the unseasonably warm winter weather drove the consumer economy. The impact of the mild winter manifested in several respects, including an unusually low number of workers being kept away from their jobs and lower home-heating bills (aided by plummeting natural gas prices, which helped offset higher gasoline prices) - all of which acted as stimulants for the labor markets. But, Shulman writes, "We suspect that once the weather and the seasonal adjustment factors normalize in March and April, the economic data won't look so ebullient."

Shulman also writes that "the stronger employment data are not appearing to translate into stronger overall GDP growth." He argues that part of the recent gains in employment was a response to prior growth, not expectations for future growth.

After experiencing 3 percent growth in the final quarter of 2011, real GDP will slow to around a 2 percent annual growth rate for most of 2012, the Forecast predicts, with the point estimate for the first quarter at 2.0 percent. Growth is expected to improve from that level in both 2013 and 2014. Moreover, the looming expiration of all of the Bush-era tax cuts and the payroll tax cut will elevate economic uncertainty in the second half of the year.

The California Forecast
In the California report, senior economist Jerry Nickelsburg looks "under the hood" of the state's employment woes, exploring the nature of California's persistently high unemployment rate and the gap between the state and the national unemployment rates.

In an essay titled, "California's Unemployment High," Nickelsburg details how the state's unemployment rate is historically the same or slightly higher than the U.S. rate. He also notes that the state's penchant for boom-or-bust cycles creates the temptation to blame the current distance between the U.S. and California unemployment rates on an excess of construction and related sector workers, just as in the early 1990s, when there was an excess of aerospace and related sector workers.

A key point in the essay is that the U.S. as a whole saw a decline in its overall labor force, as discouraged workers removed themselves from actively seeking employment. In California, the same removal from the labor force did not occur, and this accounts for much of the difference in rates between the state and the nation.

While acknowledging the importance of California's labor market dynamics, Nickelsburg writes that these findings do not alter the UCLA Anderson Forecast's view of how the California economy will evolve over the next few years. In 2012, the Forecast calls for slow growth in employment at about the national rate. When the economy picks up in 2013 and 2014, the drivers of the state's economy will be technology, exports, health care, professional, scientific and business services, and education.

The California forecast is for employment growth of 1.9 percent in 2012, 2.0 percent in 2013 and 2.6 percent in 2014. Payrolls will grow more slowly, at 1.3 percent, 1.9 percent and 2.5 percent, respectively. Real personal income growth is forecast to be 2.4 percent in 2012, followed by 2.1 percent in 2013 and 3.2 percent in 2014.

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.

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.

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