December 10, 2014

UCLA Anderson Forecast: National Economy out of the Doldrums; Unemployment Continues to Decline: California Outlook Remains Steady

LOS ANGELES, December 10, 2014 - UCLA Anderson Forecast's fourth quarterly release of 2014 foresees the United States' economy likely growing at a 3 percent pace during the next two years, as lower oil prices and higher wages bolster consumer spending and the unemployment rate falls to 5 percent. Along with consumer spending, aggressive corporate spending in equipment and software will fuel this growth. In California, steady gains in employment are anticipated through 2016, as the increase in national growth from construction, automobiles and business investment, along with the higher consumer demand, continues to power the state's economy. California's unemployment rate will continue to decline throughout the forecast period.  At 5.3 percent, it is expected to be insignificantly different from that of the U.S. by the end of 2016.

For the December publication, the UCLA Anderson Forecast includes an additional report that examines the impact of infrastructure and residential investment in Los Angeles. The research concludes that Los Angeles is the most congested city in the nation, so the city should invest more in its public transportation. The supply of homes has been insufficient in Los Angeles during the past 14 years, causing home prices to rise. Higher density in Los Angeles would partly solve the problem of housing affordability, creating a shared and prosperous economy for the next generation. 

The National Forecast

The UCLA Anderson Forecast is predicting that the weak growth rates of 2009-14 that hovered around 2 percent are in the past, as the economy ramps up to a sustained period of 3 percent growth in real GDP. "Specifically, we are forecasting 2.8 percent growth in the current quarter and anticipate growth to average 3.1 percent in both 2015 and 2016," says Senior Economist David Shulman, the author of the national forecast.  He adds that this growth will bring "a sense of economic progress on Main Street," a feeling not necessarily brought on by the tripling of stock prices since the lows of March 2009. 
Shulman reports that the economy will generate 200,000 -260,000 jobs monthly, reducing the unemployment rate to 5 percent by the end of 2016. Employment compensation will rise to 3.2 percent this year and next and 3.9 percent in 2016, besting an annual average of 1.8 percent between 2009and 2013.

The recent drop in oil prices will have a significant impact on the national economy as well. After trading at $100 per barrel most of the year, prices have plummeted to $75 per barrel. "Should the oil price remain at this level, and we expect it will, there will be huge benefits to consumers," writes Shulman. "For example, such a price reduction translates to at least 50 cents-a-gallon price cut for gasoline. With the U.S. consuming about 135 billion gallons of gasoline a year, that calibrates into a $67 billion a year boon to consumers." Shulman does note that there is a downside to lower oil prices, as more than half of the consumer benefit will be absorbed by U.S. oil producers.  That, in turn, will affect incomes, employment and capital spending in domestic oil producing regions, many of which have had the fastest growing economies in recent years.

The California Forecast

Senior Economist Jerry Nickelsburg's outlook for California is essentially unchanged. The growth of housing starts has been slightly lower than expected, but this is likely due more to the difficulties associated with starting multi-family projects rather than a change in demand for such dwellings. Tepid growth in parts of Asia and Europe will reduce the growth of California's manufactured goods sector. Despite these factors, Nickelsburg says the state's forecast for 2015 will be similar to 2014 and a stronger 2016 growth rate will result in the unemployment rate dropping to 5.3%.

"Our estimate for the 2014 total employment growth is 1.8 percent, and for 2015 and 2016 the forecast is for 2.1 percent and 2.2 percent," Nickelsburg writes. "Payrolls will grow at about the same rate in the three years. Real personal income growth is estimated to be 3.1 percent in 2014 and forecast to be 4.5 percent in both 2015 and 2016." According to the forecast report, the unemployment rate will hover around 7.1 percent through the balance of 2014. Unemployment will fall through 2015 and will average approximately 6.6 percent, a slight decrease from the previous forecast. In 2016 the unemployment rate is predicted to be approximately 5.6 percent, a half percent higher than the U.S. forecast.

Much of Nickelsburg's essay, titled "The Changing Face of Construction and Manufacturing," focuses on California's evolving workforce and labor demands.  "The transformation of the Golden State to the Information Economy of the 21st Century will continue apace," Nickelsburg writes. "The real implication is that having the appropriate skills in the labor force is critical to keep the faster-than-the-U.S. economic growth going for the long-term. Because of this, the shape of immigration reform, the ability of California to attract highly-skilled labor from other parts of the U.S., and home-grown workforce development could derail or accelerate the forecast growth rates presented here."

Infrastructure and Residential Investment in Los Angeles

Economist William Yu authored a companion piece, suggesting that Los Angeles build on investments in transportation and residential infrastructure. In his essay, Yu shows that Los Angeles is the most congested metropolitan area in the U.S. Yu says that Los Angeles' future should include a shift in preference from suburban living to higher density housing closer to the urban center, which is more affordable. Higher density cities do not necessarily have higher crime or lower quality schools and are actually more environmentally sound. Yu concludes that Los Angeles should continue and even expand its commitment and invest in public transportation and that a higher density Los Angeles would partly solve the city's expensive home price problem.

Rebuilding, Reinventing and Reimagining California's Infrastructure  

Shulman, Nickelsburg and Yu's reports will be presented at UCLA Anderson Forecast's quarterly conference on Wednesday, December 10, 2014. The conference, which will look at "rebuilding, reinventing and reimagining California's infrastructure", will take place in Korn Convocation Hall on the UCLA Anderson campus. Those interested in learning about and attending the conference may register online at www.anderson.ucla.edu/centers/ucla-anderson-forecast/events.

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 at http://uclaforecast.com.

About UCLA Anderson School of Management

UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson's MBA, Fully-Employed MBA, Executive MBA, Global Executive MBA for Asia Pacific, Global Executive MBA for the Americas, Master of Financial Engineering, doctoral and executive education programs embody the school's Think In The Next ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow. Follow UCLA Anderson on Twitter at http://twitter.com/UCLAAnderson or on Facebook at http://www.facebook.com/uclaanderson. 

Contact Information

UCLA Anderson Office of Media Relations, (310) 206-7707, Media.relations@anderson.ucla.edu

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