UCLA Forecasters Predict Weak Growth
UCLA forecasters predict anemic economic growth well into 2003 as the state and nation continue their slow recovery from last year’s downturn. But they say a second recessionary dip is unlikely despite a spate of gloomy news that has sent Wall Street reeling of late.
War jitters, slumping leading indicators and a decline in consumer confidence have heightened concerns that the recovery is stagnating. Investors have responded by fleeing stocks and seeking the haven of bonds, driving down both stock prices and bond yields. But Edward E. Leamer, director of the UCLA Anderson Forecast, which is releasing its quarterly economic projections today, said the near-term outlook isn’t as bleak as investor behavior would suggest. He said recoveries are seldom smooth and that some negative data are to be expected along the way.
Barring any dramatic shocks, he expects the U.S. economy to grow 2.3% this year and 2.7% next year. Growth in California, typically measured by nonfarm payroll employment, is expected to advance a modest 1.5% in 2003. That’s lackluster expansion compared with the boom years, but it’s expansion nonetheless.
“This is a story of disappointing growth, but it’s not the story of a dip,” Leamer said. “It’s not as bad as Wall Street thinks.”
The first in the nation to predict the 2001 recession and among the most downbeat about the strength of the recovery, UCLA forecasters aren’t known for their unbridled optimism. They remain quite pessimistic about the prospects of a quick rebound in business spending, whose decline pulled the economy into recession. Leamer said Tuesday’s action by the Federal Reserve to leave its benchmark federal funds rate unchanged signals its willingness to keep the consumer pump primed. The downside, Leamer said, is that today’s low interest rates are having the effect of stealing sales that might otherwise have occurred in 2003 or 2004 as consumers rush to take advantage of low-rate mortgages and no-interest auto financing. Although those purchases are propping up the economy today, Leamer said their inevitable slowdown will keep a lid on economic growth going forward.
In contrast to the rest of the nation, consumer spending in California has remained weak despite interest rate incentives. Taxable sales declined 0.7% in 2001 and are projected to decline an additional 1.1% this year, according to the UCLA forecast. The culprits are the technology meltdown and stock market crash that have put a huge dent in the income derived from capital gains, stock options and bonuses.
UCLA forecasters don’t see any quick turnaround in the state’s hard-hit tech sector. Continued job losses in the Bay Area will lead to a 0.2% decline in nonfarm payroll jobs in California this year. Unemployment, expected to average 6.4% this year, is projected to increase to 6.5% next year.
Even Southern California is experiencing puny employment gains. UCLA forecasters project continued weakness in manufacturing and construction. Bright spots include a surge in container traffic through the region’s ports, while travel and tourism have made a strong comeback since the steep downturn after last year’s terrorist attacks.
Southern California’s real estate market has continued to sizzle.In Los Angeles County, for example, the median sales price for a single-family home hit $286,000 in July, a 17% increase from a year ago. Meanwhile, growth in rents in the area has been slowing. The UCLA forecast said that’s a sign that housing prices are “moving into worrisome territory” but are still far from the overheated levels of the early ‘90s.
