UCLA Study Sees California Regaining Jobs : Employment: Despite stalled growth, forecasters predict state expansion to exceed that of the nation by 1997.
California’s job growth this year will be slower than originally expected, but the state will still recoup the jobs lost during the punishing recession by the end of next year, UCLA said in its latest quarterly business forecast, to be released today.
The state’s employment will eventually grow at a faster rate than that of the nation by 1997, according to the widely watched Business Forecasting Project of UCLA’s Anderson Graduate School of Management.
But it downgraded its predictions of job growth this year to 2.1% from the robust 3.6% predicted only three months ago, in part because of statistical revisions and the negative effect of several factors. Those include a string of natural disasters, Mexico’s financial crisis, a lack of meaningful recovery in residential construction and ongoing belt tightening at all levels of government.
“Although we project a continuing recovery for California, we have postponed the surge that we previously called for,” wrote forecasters Larry J. Kimbell and Tom K. Lieser. “Corporate downsizing has cut job growth in financial institutions and the private service sector in California.”
UCLA’s report is the latest in a series of upbeat forecasts that the university began issuing in early 1994 when California began pulling out of the recession. Even with the revised outlook for 1995, UCLA is more optimistic than other forecasters.
“At 2.1%, they may still be at the high end of what people are saying,” said Stephen Levy, an economist and director of the Center for Continuing Study of the California Economy in Palo Alto. Other recent forecasts have predicted state job growth of between 1.5% and 1.9% for 1995.
California non-farm employment grew 1.1% in 1994, the first time the state joined the current U.S. job expansion, the UCLA report says. All told, the state has lost more than 520,000 jobs, or 4.2% of the peak 1990 employment level, between July, 1990, and October, 1993, which was the bottom of the cycle.
The good news is that the state should recover those losses by 1996, UCLA said. Indeed, the state has already recovered 330,000 of those jobs, it estimated.
Many of the newly created jobs, such as those in the entertainment and high-tech industries, will pay well, and UCLA forecast that real personal income in California will rise 4.5% in 1995, 2.2% in 1996 and 4.3% in 1997. Though state job growth will lag the rest of the nation slightly in 1995, it will exceed the U.S. pace over the following two years, reaching an annual 3.2% job growth rate by the end of 1997, driven mainly by increased exports, UCLA reported. By contrast, the nation will see annual job growth of 2.1% by 1997.
The forecast goes further than a prediction last summer by the Center for Continuing Study of the California Economy, which predicted that the state’s annual rate of job growth would exceed the nation’s by 2005.
The bleak spot in the UCLA forecast concerns residential construction, which continues to show no signs of significant recovery, UCLA said. Home prices also continue to fall.
Recent reports from other sources show that home sales were weak in the winter, due mainly to higher interest rates and bad weather.
The biggest risks to California’s recovery include the Mexican peso devaluation and fiscal crisis, UCLA said. Because the state relies on exports to Mexico more than the rest of the United States does, it stands to suffer disproportionately from a decline in Mexican trade.
UCLA downplayed the potential negative effects of Orange County’s bankruptcy, as well as the likelihood of a national recession.
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California’s Job Growth Rebound
California’s annual rate of job growth will lag the nation’s in 1995, but it will surpass the United States’ in 1996 and ‘97, UCLA forecasters say. Year-to-year percentage change in non-farm employment.
California: 3.2
United States: 2.1
Source: UCLA
