March 2020 Economic Outlook

Los Angeles (April 29, 2020) — The Commerce Department reported today that under the weight of the COVID-19 pandemic real GDP declined at a 4.8% annual rate in the first quarter, somewhat worse than our latest forecast of a 3.5% drop. Real consumption spending was down by 7.6% and equipment investment was down by 15.6%. In contrast, residential investment was up by 21%. Simply put housing was in a boom phase up to about March 15th.

Nevertheless the first quarter data is old news. It will soon be paled by a 30%-40% drop in real GDP on an annualized basis in the current quarter. The economy is currently in a free fall that will only be abated as the economy begins to reopen as the public health restrictions are gradually lifted.

Los Angeles (April 10, 2020) — Given the speed of the U.S. economy’s rate of decline amid the coronavirus pandemic, the UCLA Anderson Forecast team has updated its views, downgrading the near-term outlook. According to senior economist David Shulman, real GDP is now on track to decline in the second quarter of 2020 by 7.5% from the previous quarter (an annual rate of -30%), and decline by an additional 1.25% in the third quarter (an annual rate of -5%).

This contraction will drive the official unemployment rate to a peak of around 13% in the fourth quarter, and total job loss to approximately 17 million. The economy is forecast to rebound by 1% in the fourth quarter (an annual rate of 4%). The rate of growth is expected to accelerate in early 2021 as the effects of COVID-19 abate; however, a recovery to an employment level equivalent to the last months of 2019 will not occur until late 2022.

The update is the second revision by the UCLA Anderson Forecast economists to their regular quarterly spring Forecast, originally published on March 12 and revised on March 16, 2020.

With respect to California, UCLA Anderson Forecast director Jerry Nickelsburg expects the state’s unemployment rate to be higher than for the U.S., predicting that it will peak at more than 16% with 2.2 million jobs lost in the state. A sharp contraction in income and taxable sales will cause increased stress for state and local government at a time when the demands on them are increasing. As with the U.S., employment in California will not return to its previous peak levels until late 2022.

After an analysis of recent payroll declines (available on the UCLA Anderson Forecast website), Professor Emeritus Ed Leamer stated that “While we normally would use the historical data regarding expansions and recessions to form a forecast, this economic shutdown creates an economy so unlike any we have ever experienced that the historical data are rendered nearly irrelevant. Professor [and renowned University of Chicago economist] Frank Knight famously contrasted decision making with known probabilities (uncertainty) and decision making with unknown probabilities (risk). There is a lot of risk out there now.”

Implicit in the latest forecast is the assumption of an abatement of the pandemic and accompanying safer-at-home orders this summer. The UCLA Anderson Forecast is keeping a close eye on both the appropriateness of this assumption and the unique economic events that are currently unfolding, and will update its analysis as events dictate.

Los Angeles (March 16, 2020) – Revising a forecast published March 12, UCLA Anderson Forecast economists say the U.S. economy has entered a recession, ending the expansion that began in July 2009.

The revised forecast, which incorporates data reflecting a rapidly changing U.S. economy, together with a review of the 1957–58 H2N2 influenza pandemic, is for the recession to continue through the end of September.

This marks the first time in its 68-year history that the UCLA Anderson Forecast has published an updated forecast between its regularly scheduled quarterly releases.

After the economy had experienced a solid start to 2020, the escalating effects of the coronavirus pandemic in March have reduced the first-quarter 2020 forecast of GDP growth to 0.4%. GDP for the second quarter of the year is now forecast to slow by 6.5%, and by 1.9% for the third quarter. With the assumption of an end to the pandemic and repaired supply chains by this summer, the Forecast predicts the resumption of normal activity in the fourth quarter of 2020 and a GDP growth rate of 4.0%.

For the full 2020 year, it is expected that GDP will have declined by 0.4%. In 2021, with the abatement of governmental pandemic expenditures and the continued contraction of residential and commercial construction, the economy is forecast to grow at 1.5%. The full recovery and return to trend is now expected in 2022.

Recession Expected to be More Severe in California than for Nation Overall

For California, a state with a larger proportion of economic activity in tourism and trans-Pacific transportation, the economic downturn will be slightly more severe. Employment is expected to contract by 0.7% in 2020 with employment contracting during the second and third quarters at an annual rate of 2.6%. The state's unemployment rate will rise to 6.3% by the end of this year and is expected to continue to increase into 2021 with an average for 2021 of 6.6%. By the first quarter of 2021, California is expected to lose more than 280,000 payroll jobs with more than one-third of those in the leisure and hospitality and transportation and warehousing sectors.

The revised forecast comes with an important caveat. If the pandemic is much worse than assumed, this forecast will be too optimistic. If the pandemic abates quickly because of the extraordinary measures being put into place to address it, an outcome that the medical community thinks unlikely but possible, then the forecast will be too pessimistic and economic growth in the third and fourth quarters of the year will be higher.