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California economy continues uneven recovery, UCLA says

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California continues to be a story of two economies: coastal regions with healthy job growth and inland areas that are still struggling to recover, according to a UCLA report released Thursday.

UCLA economists said in their quarterly forecast that coastal counties stretching from Marin to San Diego have enjoyed employment gains that outpaced the U.S. In contrast, inland areas such as the San Joaquin Valley and the East Bay are showing little or even negative growth.

Years of economic turmoil have especially been hard on the Inland Empire, which includes Riverside and San Bernardino counties. The region's October unemployment rate was 9.8%, down from 11.7% a year earlier. But its jobless levels were still well above the 7% in San Diego County and 5.8% in Orange County.

"The inland regions have yet to find a new engine of growth," said Jerry Nickelsburg, senior economist at the UCLA Anderson Forecast. They "have historically depended on sectors that have not been growing in this recovery … which means conditions of relative stagnation."

Nickelsburg likened those areas to the "Appalachia of yore: anemic to no growth and dominated by lower wage employment." UCLA researchers dubbed these hard-luck regions "Californillachia."

Inland regions have long depended on sectors that have yet to come roaring back. In inland counties, for example, the government and construction industries traditionally represent 25% to 35% of all jobs; many of these sectors have shed positions in the last 12 months, the forecast said.

In the last two years, the housing recovery has spread across California. But Inland Empire homeowners simply have further to climb to escape underwater mortgages — where the loan amount exceeds the value of the house — than those living along the Pacific.

In October, the median home price in Riverside County was 38% below its housing bubble peak, according to research firm DataQuick. In San Bernardino County, prices were 40% below that level.

In Los Angeles County, prices are 23% under their bubble peak, while in Orange County that figure stands at 16%. The median is the point at which half the homes sold for more and half for less.

Nickelsburg said historical data from similar regions around the country indicate that inland California could take a decade or more to fully recover.

"The inland regions will remake themselves in some way, but it's not clear in what way and not clear how long it will take," he said.

The uneven recovery aside, UCLA economists expect the state's economy to continue growing.

California's unemployment rate, currently 8.7%, is expected to fall to 8.2% by the end of 2014, according to UCLA. The report predicts that the jobless rate will fall even further to 7.3% by the end of 2015.

Nonfarm payroll growth is expected to be 1.7% by the end of the year. But that pace is expected to pick up to 1.8% by 2014 and 2.2% by 2015.

The national economy is also expected to experience a slow but steady recovery.

David Shulman, senior economist at the UCLA Anderson Forecast, said a drop in business investment and exports, compounded with partisan gridlock in Washington, slowed down the economy in 2013. Despite these drawbacks, there is potential future growth in sectors such as construction, energy and mobile technology.

"As long as the federal government does no harm, admittedly a dangerous assumption, the economy will be spurred by strength in business spending and an end to the dramatic drop in federal purchases," Shulman wrote in the report.

The U.S. gross domestic product — the value of goods and services produced — is predicted to grow only 1.8% in the current quarter. But UCLA forecasts that growth will hit 3% by the second quarter of 2014, enough to add 200,000 jobs a month and push down the U.S. jobless rate close to 6% by 2015.

shan.li@latimes.com

andrew.khouri@latimes.com

Copyright © 2014, Los Angeles Times
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