Midyear Rebound Possible, UCLA Economists Say
Business analysts at UCLA, credited as the first in the nation to predict the current U.S. recession, are releasing a new analysis today forecasting that a moderate rebound will begin by midyear.
But the UCLA analysts remain more pessimistic than most other prominent U.S. forecasters, some of whom expect a strong expansion in the second half of 2002.
“We’ll probably hardly know that it’s a recovery,” said Edward E. Leamer, director of the UCLA Anderson Forecast. “There’s nothing that will contribute all that much to growth.”
Leamer, whose group issues updated forecasts for the national and state economies every three months, said the nine U.S. recessions since World War II have been followed by economic expansions typically in the 4% to 5% range. But he predicted that this recovery will be followed by several years of annual growth, as measured by the gross domestic product, hovering around 2% to 3%.
Other forecasters have said that if the nation is spared further large-scale terrorism, the economy should rebound strongly late next year because of the Federal Reserve’s interest rate cuts and the likelihood that businesses will resume investing in technology to remain competitive, among other factors.
The UCLA forecast counters, however, that the global recession will dampen recovery in this country because U.S. industries that count on export sales are hurting.
In addition, Leamer pointed to the sharp decline in investment in high-tech equipment and software over the last year as the chief cause of the recession. He said companies spent so heavily on high tech during the “Internet rush” of the last few years that they are unlikely to repeat that pattern now, particularly since so many dot-com ventures and other computer-related investments have flopped.
Leamer warned that layoffs and rising unemployment probably will continue well into next year. He said that’s partly because companies, mindful of how difficult it was to find qualified employees at the height of the recent boom, have been reluctant to cut their work forces severely. Still, he said, as the downturn continues, the job cuts will climb.
Specifically, the UCLA forecast calls for the U.S. jobless rate to rise from 4.7% this year to 6%, the highest since 1994, next year.
UCLA initially forecast a 2001 recession for the U.S. last December, months before most other analysts.
The UCLA forecasters, along with other California analysts, anticipate a recovery in the state economy by the middle of 2002. However, UCLA forecasts that the state’s unemployment rate will climb from 5.2% this year to 6.3% next year.
The California Legislative Analyst’s Office has forecast even higher joblessness next year, predicting a rate of 6.7%.
UCLA’s analysis minimizes the role of the Sept. 11 terrorist attacks on the nation’s economic woes. Leamer said the recession was officially declared last week to have begun in March.
In addition, the possible damaging macroeconomic consequences of terrorism--reduced consumer spending or a shift of investment from the U.S. to other parts of the world--have not materialized.
“We are in this recession because of the collapse in tech spending, which is not likely to be much affected by 9/11 or the anthrax scare,” Leamer wrote in the UCLA report.
In California, a growing number of analysts say the brunt of the state’s recession will be borne by the Bay Area, particularly Silicon Valley in Santa Clara County, because of its reliance on high-tech spending.
Business growth in Los Angeles County also is believed to have slowed to a standstill. But in San Diego and in the counties surrounding Los Angeles, expansion is predicted to continue, albeit at a more moderate pace.
