December 02, 2015

(Los Angeles - Dec. 2, 2015) UCLA Anderson Forecast’s fourth quarterly economic report for the United States says the Federal Reserve will start to normalize interest rates as its prolonged “zero interest rate” policy reaches its end with the most recent financial crisis long over and the unemployment rate indicating near full employment. In California, the there is no indication of any slowdowns or declines in the continuing growth of both employment and income in California and, in fact, the employment sector will grow throughout the forecast period.

The National Forecast

In his forecast for the national economy, UCLA Anderson Senior Economist David Shulman cites a paradox in the current employment picture. While October’s 5.0% unemployment rate is essentially the traditional definition of “full employment,” the employment-to-population ratio is 59.3% ⎯ four percentage points below the level recorded prior to the start of the financial crisis in 2006 and, as such, the recovery may not feel like much of a recovery for many Americans. “Nevertheless,” Shulman says, “employment remains healthy, with the economy generating jobs at a 200,000-a-month clip that will bring with it further declines in the unemployment rate to 4.6%.”

The December forecast also says the Federal Reserve “is about to get the inflation it has been waiting for.” As a result, Shulman says, “With the financial emergency long over, the unemployment rate indicating near full employment and the likelihood that inflation will soon approach its 2% target, we expect the Fed to begin normalizing interest rates by increasing the Federal Funds rate this month. … Thus, we forecast that by the end of 2016 the federal funds rate will be about 1.5% and it will approximate 3.25% at the end of 2017.”

Ongoing job growth and expected wage increases will drive consumption in 2016 leading to the first year of greater than 3.0% growth in real GDP since 2005. The higher wages, along with a modest rebound in oil prices and higher housing costs, will push the inflation rate above 2.0%, leading the Fed to begin a gradual tightening cycle beginning this month. Economic strength will be found in housing and commercial construction along with a booming automobile market. The collapse in oil-related capital spending will come to an end next year and defense spending will be increasing after five years of decline.

The California Forecast

In his December essay, UCLA Anderson Senior Economist Jerry Nickelsburg looks at California’s most recent economic data, including trade through California’s ports, international arrivals at LAX and SFO, state government finances, residential construction and employment. (These data represent the sectors that differentiate the state from the U.S. average forecast.) Nickelsburg cites data that indicate ongoing growth for California, including: port activity in September was at a historically high level; international passenger arrivals at LAX and SFO have reached record numbers over the past year; a (shallow) upward trend in sales taxes (which are still below the pre-recession peak when adjusting for inflation); continued growth in residential construction; and impressive gains in California employment.

The current forecast is for continued steady gains in employment through 2017. The increase in U.S. growth rates will continue to fuel the local economy, leading to a steady decrease in the unemployment rate in California over the next two years. Anderson economists expect California’s unemployment rate to be insignificantly different from the U.S. rate at 4.9% by the end of the forecast period.

The forecast calls for a 2015 total employment growth of 2.6% and for 2016 and 2017 the forecast is for 2.1% and 1.4%. Payrolls will grow more at about the same rate. Real personal income growth is estimated to be 4.3% in 2015 and forecast to be 3.4% and 3.2% in 2016 and 2017, respectively.

Office-Using Employment Growth across Cities, 2000 to 2015

In another essay, Forecast Economist William Yu looks at the growth of office-using employment across metropolitan areas in the U.S. from 2000 to 2015. Office-using sectors ⎯ (1) information, (2) financial activities and (3) professional and business services ⎯ pay their employees the highest salaries. The growth of office-using sectors is crucial to the city’s prosperity because of the high purchasing power of those employed in them. Thanks to the higher wages in the sector, office-using employment has become the backbone of city economies in the U.S. The resilience of these sectors will help cities to achieve shared prosperity in the 21st century.

In summary, Yu demonstrates a disparity in office-using employment across cities in the last eight years. Some of the most dynamic growth comes out of San Jose and San Francisco, fueled by the recent high-tech boom. Historically, however, the Bay Area tends to have a volatile employment cycle due to the boom-bust cycles of the high-tech industry.

The three biggest metros in the country ⎯ New York, Los Angeles and Chicago ⎯ have seen lower growth in office-using employment over the past eight and 16 years compared to most other major cities in the U.S. One of the reasons is that these three cities, which are major financial centers, lost a significant number of jobs in the finance sector during and after the financial crisis.

Will C-3PO Be Your Next Office Associate?

All of the economists’ reports will be presented at UCLA Anderson Forecast’s quarterly conference on Wednesday, December 2, 2015. The conference features a number of panels focused on how technology is changing the office environment and its impact on the workforce. The keynote address comes from UCLA Anderson Professor Uday Karmarkar. For more information on attending the conference, please visit

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

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.

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