March 15, 2005

LOS ANGELES, March 15, 2005 — In its first quarterly report of 2005, the UCLA Anderson Forecast asserts that the current expansion in the national economy is nearer its end than its beginning.  While the report, released today, stops short of predicting a recession—at least exactly when the next recession will hit—it does outline a scenario that points towards a slowing of the economy and an eventual downturn.  In California, slow growth is expected over the next few years, as a weak housing market offsets some of the strengths in other parts of the economy.

The National Forecast
In his report, UCLA Anderson Forecast Director Edward Leamer sheds light on the current economic expansion via an historical prism.  Leamer points out that historically; economic expansions have not lasted very long, with five of the last nine lasting only 14 quarters or less.  The current expansion is 12 quarters old right now and Leamer sees no growth spurt on the horizon that will extend it much further.

In a detailed discussion, Leamer reveals that the three longest expansions in history all experienced growth spurts during which the rate of growth of GDP was abnormally high and the rate of unemployment was driven down. Each expansion is different, with different stimuli bringing about the growth spurt.  But Leamer sees no clear stimuli on the horizon in 2005, ruling out both tax cuts (which have already occurred) and monetary stimulus (which has also occurred through low interest rates).  An increase in government spending is doubtful (unless it is wartime spending), leaving only exports as a possible ray of hope.  Exports were a major factor in the length of the Reagan expansion, and the declining dollar vs. the Euro should stimulate this sector.

Leamer concludes with the assertion that a recession is in the future; he just doesn’t know when yet.  He doesn’t see it in 2005, but believes it could happen in 2006.

The California Forecast
In California, UCLA Anderson senior economist Christopher Thornberg says that at best the state economy can be expected to maintain slow growth over the next few years as the weak housing sector saps off strength created in other parts of the state’s recovering economy.  There are some good economic indicators in California, however.  The falling dollar has helped keep more entertainment production in state instead of moving overseas or to other parts of the country.  It has also bolstered manufacturing and tourism.  The high-tech industry is in turnaround, with greater employment in this sector just around the corner.  Finally, the public sector may be seeing a light at the end of the tunnel, with jobs returning in this area as well.

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. Most recently, the Forecast is credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at

About UCLA Anderson School of Management
UCLA Anderson School of Management is perennially ranked among the top-tier business schools in the world.  Award-winning faculty renowned for their research and teaching, highly selective admissions, successful alumni and world-class facilities combine to provide an extraordinary learning environment.  UCLA Anderson constituents are part of a culture that values individual vision, intellectual discipline and a sense of teamwork and collegiality.

Established in 1935, UCLA Anderson School of Management provides management education to more than 1,400 students enrolled in MBA and doctoral programs, and some 2,000 executives and managers enrolled annually in executive education programs.  Recognizing that the school offers unparalleled expertise in management education, the world's business community turns to UCLA Anderson School of Management as a center of influence for the ideas, innovations, strategies and talent that will shape the future.

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