UCLA Forecasts Boom for State Economy in 1999

California’s economy is growing faster than expected, putting the state in a position to repeat last year’s spectacular creation of nearly half a million new jobs, according to new surveys and interviews.

UCLA forecasters, in their outlook report released today, predict that California’s job growth, personal income, taxable sales and in-migration this year will basically match 1998’s stellar performance.

By the university’s reckoning, the state’s unemployment rate will decline further this year--not rise as previously expected--to a low for the decade of 5.5% from an average of 5.9% last year. The state’s jobless figure was 5.6% in February.

Not all economists were as optimistic, but they agreed that California’s short-term prospects have improved vastly from just a couple of months ago.

One big reason is the persistent strength of the national economy, of which California is a major component. Another is that new government data for California--from building permits to payroll taxes--suggest that the momentum from the second half of last year is carrying into this year.

“UCLA’s numbers are definitely plausible,” said Ted Gibson, chief economist of California’s Department of Finance.

California’s economic expansion has not let up, he said, noting that payroll tax witholdings in the first quarter are running 12% higher than last year.

Moreover, he said, a new report on employer records from the third quarter of last year revealed the addition of 45,000 more jobs to the state’s nonfarm employment. That boosted payroll growth last year to about 475,000 jobs, surpassing a previous upward revision.

Economists say this year’s stronger-than-expected job growth will boost home values and translate into higher personal income and taxable sales, bringing in more revenue to state coffers.

“There’s no question it’s positive for the budget,” Gibson said. It won’t be clear by how much, however, until after the tax-filing deadline of April 15.

Like almost every economist, Gibson and UCLA forecasters have underestimated the resilience of the national economy, which has pushed into its eighth year of growth with few signs of slowing. California’s economic expansion has the additional advantage of being about two years younger, because it sank further and emerged later from the nation’s recession of 1990 and ’91.

Tom Lieser, UCLA’s principal California forecaster, said Monday that he expects California’s economic growth to moderate next year. But he projected that this year, nonfarm job growth will get a big boost from the construction and service industries, surging overall by 3.4%--a full percentage point higher than UCLA’s previous forecast just three months ago. That is a difference of 138,000 jobs.

If UCLA’s projection bears out, California would produce about as many jobs this year as 1998.

“Wow, ooh boy!” said Mark Zandi, chief economist at Regional Financial Associates, reacting to UCLA’s new forecast. RFA, a national forecasting firm in West Chester, Pa., also recently upgraded its job-growth outlook for California, but only to 2.5% from below 2% late last year.

Yet Zandi said he wouldn’t be surprised if California does better than that, especially if it gets a lift as businesses push to fix the year 2000 computer problem. Moreover, he said, concerns about the so-called Y2K problem and compliance overseas may prompt a flight of capital to U.S. stock and bond markets, which could reduce interest rates.

That is what happened in the wake of the Asian crisis, which sharply slowed exports but had an overall net positive effect on most U.S. households and the housing market by helping to keep interest rates low and driving down consumer prices for energy and commodities.

Sung Won Sohn, chief economic officer at Wells Fargo in Minneapolis, views UCLA’s forecast as a bit too optimistic. On the positive side, he said, California will benefit from the apparent bottoming of the Asian crisis and the unexpected calm in Latin America--both of which should aid the state’s export industries. He said the Bay Area economy, which last year lagged Southern California, also may pick up as the computer chip market firms. But he added that California consumers are likely to feel an inflationary pinch as commodity prices, notably oil, rise this year. Sohn also believes there is a good chance the Federal Reserve will kick up interest rates later this year.

Rajeev Dhawan, UCLA’s forecaster for the U.S. economy, agreed that rates are more likely to go up this year than down. But he doesn’t see that happening until close to the end of the year.

Dhawan and economist Larry Kimbell are expecting the nation’s inflation-adjusted gross domestic product, or total output of goods and services, to advance a robust 3.5% this year. That is a percentage point higher than their previous forecast. Dhawan said the tight labor market and a cooling of consumer spending will eventually contribute to a national economic slowdown in 2000, and GDP growth of 2.1%.

UCLA’s forecast for California predicts that both taxable sales and personal income will rise a potent 6% this year. The forecast furthermore calls for a 6% increase in home values in Los Angeles County this year, after an 8% jump in 1998.

G.U. Krueger, economist with the California Assn. of Realtors, said median resale prices in January and February ran 12% higher in the county and somewhat lower in surrounding areas. New residential building permits, meanwhile, rose 20% early this year.