State’s Economy to Shine in 2000, Analysts Predict
California’s economy will keep roaring this year, producing nearly a half-million jobs and raising overall personal income by a strong 7.6%, UCLA business analysts predicted Wednesday.
The outlook in the latest UCLA Anderson Forecast, a closely watched quarterly report, is the most upbeat assessment yet for 2000 from the major analysts following the state’s economy. If the UCLA forecasters are on target, it means that this year will bring California more new jobs than any year since 1978. In percentage terms, job growth would be the second-highest in 12 years.
Forecasters at UCLA and elsewhere say the state’s continuing economic growth will be powered by new stock market wealth, a pickup in home building and rising exports of computers, software and other technology products.
Based on the trend of recent months, “it’s going to be a very good year,” said Tom Lieser, executive director of the Anderson Forecast. He said the economic gains predicted by UCLA, “as good as they are, could be a little conservative.”
The report reflects a growing sense that California’s boom packs lots of momentum. California’s expansion, which began nearly six years ago, already is the second-longest in state history and is predicted to continue outpacing growth nationally.
By sometime next year, UCLA analysts said, the state and national unemployment rates will draw even at about 4.5%, ending more than a decade in which the state has lagged the nation. California’s current jobless rate of 4.6% compares with 4.1% for the nation.
In the last three months, California--which accounts for just 11% of the nation’s nonfarm employment--has generated 18% of the new jobs nationwide.
Still, the UCLA analysts and other forecasters caution that a stock market collapse could abruptly reverse California’s economic fortunes. That vulnerability stems from the huge role that stock market gains, particularly among California’s many technology companies, have played in boosting personal income and consumer spending.
The UCLA forecasters also warn that, even if the stock market remains buoyant, growth probably will taper off late this year and in 2001. The main reasons: widespread shortages of labor, interest rate increases engineered by the Federal Reserve and high home prices. At least in the short run, higher oil prices could hurt too, as could a renewed descent in the aerospace manufacturing industry.
Some other economists argue that the mix of encouraging and discouraging developments suggests that California’s economy will keep humming, but not quite at the level UCLA is forecasting.
“As I balance the books, exports are clearly a plus, and Hollywood’s prospects are looking better. But higher interest rates will have some effect on us, and there’s also the sorry state of Japan’s economy,” which puts a damper on trade, said Ted Gibson, chief economist for California’s Finance Department.
In addition, UCLA analysts pointed out in their report that economic growth has been uneven around the state.
The laggard among the state’s big metropolitan areas is Los Angeles County, which was ground zero for the state’s economic collapse in the early 1990s. Even so, the latest unemployment figures show that the county’s jobless rate was 5.6% in February, down from 6.3% a year earlier.
On top of that, other Southern California counties are showing much faster employment growth and much lower unemployment rates than Los Angeles. Orange County’s latest jobless rate was 2.3%, and San Diego County’s was 2.6%.
“We’re surrounded by rapidly growing areas,” Lieser said. “The region as a whole is doing well.”
The highest-flying region in the state, however, is the technology-rich San Francisco Bay Area. Gains in personal income in the Bay Area, lifted by “dot-com” stock offerings and other Wall Street-related profits, are projected to lead the state. Meanwhile, the latest unemployment statistics show San Francisco at a strikingly low 1.9%.
The outlook remains downbeat for Central California, where many communities are struggling with double-digit unemployment rates. In another worrisome sign, business owners around the state have been getting hit this year with sharply rising workers’ compensation insurance premiums.
California’s overall economic growth has translated into tax windfalls and budget surpluses for state government. Citing that situation, the California Chamber of Commerce has called for something that employer groups normally loathe: more government spending, in this case on roads and schools.
Chamber spokeswoman Kathy Fairbanks said the strength of the economy means that “now would be a good time to invest in California’s future.” The chamber is also supporting cuts in business taxes, she said.
Fairbanks said that, without more road construction, traffic congestion will worsen. That, she said, increases transportation costs for California companies and reduces the productivity of workers stuck behind the wheels of their cars.
In addition, the chamber is calling on state lawmakers to pass legislation providing legal relief and financial incentives to encourage more home building and, thus, ease housing costs. “Employers are having a difficult time attracting employees for open jobs because they’re scared off by the high cost of housing,” she said.
Home building has lagged other sectors of the state economy. Analysts differ over the reason for that lag, but one likely factor is the battering the industry took during the recession of the early 1990s.
Still, UCLA forecasters predict that builders will receive permits this year to construct 150,000 apartment units of single-family homes, up from 140,175 in 1998.
The UCLA forecast predicts the state will gain 486,000 nonfarm jobs this year, reflecting a 3.5% increase in employment. That would be up from 421,000, or 3.1%, in 1999, and the biggest gain since 1978, when California added more than 600,000 jobs.
The predicted 7.6% personal income growth would be the highest such increase since 1990’s gain of 8.2%. Adjusted for inflation, however, this year’s personal income gain is expected to be 5.3%, up from 4.3% in 1999 but down from 5.4% in 1998.
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Bullish on California
Boosted by stock market profits and wage gains, personal income among Californians is projected to increase 7.6% this year.
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Personal Income: California % change: 2000: 7.6%
Nonfarm Employment: California % change: 2000: 3.5%
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Source: UCLA Anderson Forecast
Note: Projected figures for 2000, 2001 and 2002.
