California economy will keep plodding through ’16, UCLA forecast says
California’s “painfully plodding” economic recovery will continue its slow march through 2016, according to the quarterly UCLA Anderson Forecast.
The third-quarter report, released Thursday, predicts that the state unemployment rate will sink to 5.7% by the end of 2016 from 7.4% now. That would continue to top the national rate, which UCLA economists expect will fall to 5.3% from its current 6.1%.
“The fundamentals of California and the U.S. suggest the most likely evolution of the California economy is more of the same — slow, steady and unexceptional growth,” said Jerry Nickelsburg, a senior economist with the forecast.
The recovery in Los Angeles, although it has quickened in the last two years, continues to trail the state and nation because the city and county economies plunged more deeply during the recession.
As of July, payroll jobs in both Los Angeles county and city had yet to reach pre-downturn levels; employment in the city is lower than it was in 1990, according to UCLA economists. The city’s unemployment rate is 8.5%; the county’s is 8.1%. Moreover, many residents are underemployed.
Katie Badger, 24, is among those struggling to find a place in the L.A. economy. A college graduate working as a barista, she relies on finely honed budgeting skills to stretch her paycheck enough to afford her West Hollywood rent.
“Things are super, super tight,” Badger said. “You have to constantly be on the lookout for two part-time jobs that will mesh well.”
A week and a half ago, she started looking for supplementary work as a secretary or receptionist, sending at least one resume or application a week. Only one company has responded.
“There’s a lot of people who you wouldn’t expect competing for these jobs — a lot of middle-aged people who are trying to obtain the same sort of entry-level job,” she said. “It makes it difficult for younger people like myself.”
Another “fly in the ointment,” according to Nickelsburg: weakness in the world economy.
That could dampen exports from California, which depends on international trade more than many other states.
Contractions in Japan and Germany, stagnation in France and a slowdown in China may create an imbalance in California’s key trade industry, leading to a heavier focus on imports.
But other developments could push the state’s recovery forward.
A swarm of new healthcare, environmental and labor policies — some proposed, others approved — would go into effect in California in the next few years. Several cities, including Los Angeles, are weighing minimum-wage increases; efforts to revamp the California Environmental Quality Act, which some argue hampers business growth, are being debated.
The U.S. economy will be marginally stronger in 2016, according to the UCLA report. Real gross domestic product — the value of goods and services produced — declined at an annual rate of 2.1% in the first quarter before rebounding to a 4.2% rate in the second. It’s expected to grow at a 3.1% rate next year and 3.4% in 2016.
Several trends are feeding the recovery, including investment in energy production, a rise in commercial real estate construction and a surge in defense spending expected because of conflicts in Iraq and Ukraine.
The momentum will encourage more movement of goods and services through major trade gateways such as California, UCLA economists believe. To support the traffic, the state’s logistics industry could expand, construction of new industrial space may surge and even manufacturing might perk up.
New home starts in the state will expand 5% next year and 3% in 2016, outpacing the rest of the country, the report predicts. But California is in a housing supply crunch, as foreclosure sales retreat to normal levels and many homeowners remain reluctant to put their homes on the market.
Growth in personal income, after inflation, also will slightly outpace the nation, swinging up 4.4% next year and 4.6% the following year, according to the forecast.
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