California Job Growth to Continue Says UCLA Anderson Forecast

Forecasters See No Evidence to Support Nation's 8.2% GDP Figure

Dec 11, 2003, 00:00 ET from UCLA Anderson School of Management

    LOS ANGELES, Dec. 11 /PRNewswire/ -- In a series of reports released
 today, the UCLA Anderson Forecast predicts California's economy will
 experience increased job growth in 2004 and 2005.  However, this growth will
 be limited and unevenly distributed throughout the state's various regions.
 Additionally, forecasters heed caution for the nation's 8.2% GDP figure for
 third quarter 2003.
     The California Forecast
     In an overview of California's economy, Senior Economist Tom Lieser
 states, "With stimulus coming from the improving national and world economies
 through 2004 and 2005, (nonfarm) employment is forecasted to increase 0.9% in
 2004 and 2.1% in 2005."  This limited expansion in California's forecast will
 bring the state's unemployment rate down to 6.5% in 2005.  Put in perspective,
 the rate was 4.9% as recently as 2000.
     California's job gains will be concentrated in the services sector,
 particularly newly recombined Education and Health services sector, which,
 with more than a decade of steady growth, has experienced uninterrupted
 expansion longer than any other sector.  Information services declined for ten
 consecutive quarters but began adding jobs in the third quarter of 2003 and is
 expected to continue to do so, albeit at a pace well-below the 11.2% seen in
 2000.  Growth has resumed in professional and business services as well.
     In contrast to the services sector, the manufacturing sector remains
 problematic for California.  The steep decline in manufacturing in the state
 has slowed, but no new hiring is yet apparent.  Most of the jobs lost in
 manufacturing will not return, particularly production jobs.  By 2005, the
 UCLA Anderson Forecast expects to see modest new hiring in this area, but
 total employment in manufacturing will be lower than it is today.
     Taxable sales in California are the best proxy for consumer spending in
 the state and 2003 should ultimately be a positive surprise when all data are
 in.  With improved growth in employment and earnings in 2004, look for an
 increase in sales growth of 5.0% in 2004 and 4.9% in 2005.  Real estate prices
 should continue to rise in California, assuming mortgage rates remain
 "reasonable;" single digit rates are most likely over the next two years.
     The National Forecast
     Despite an unexpected 8.2% GDP figure for third quarter 2003, the UCLA
 Anderson Forecast stays the course with its national report and predicts
 acceptable growth rates in employment, but not at a rate that drives down
 unemployment significantly.
     In a report titled, "The Twilight Zone Economy," authors Edward Leamer,
 director of UCLA Anderson Forecast, and Michael Bazdarich take a close look at
 the 8.2% figure, but find no evidence in the rest of the economic data to
 support it.
     They warn the 8.2% growth creates greater uncertainty for next year's
 outlook and suggest, "For inventory decisions, the greater uncertainty calls
 for higher stocking levels to limit the chance of a stock outage."  They also
 advise, "lower revenue forecasts to limit the chance that spending commitments
 are made that cannot be lived up to."
     California Regional Forecasts
     Supplementing the California (and national) report(s), the UCLA Anderson
 forecast is simultaneously releasing three regional reports for California.
     Los Angeles Forecast
     The Los Angeles economy failed to show any significant signs of
 improvement since the slump experienced in fourth quarter 2002 and first
 quarter 2003.  Unemployment remains at 6.9% and payroll employment is stuck at
 just over 4 million jobs.  Worker earnings in manufacturing and construction
 in the county remain flat.
     Senior Economist Christopher Thornberg believes that the Los Angeles
 County economy is in "better shape" than recent data indicates.  "While LA had
 continued to lose jobs recently, its neighboring economies have begun to add
 them again, particularly in the Inland Empire and Orange County.  Strong
 growth around Los Angeles will lead to increased demand for services produced
 here," said Thornberg.
     The outlook for Los Angeles County has not changed substantially since the
 group's last report in September 2003.  Payroll employment is still expected
 to increase by 40,000 jobs in 2004 and 80,000 in 2005.  Manufacturing and
 trade will be areas of weakness, while state and government hiring will rise
 despite budget problems.
     Thornberg's analysis includes an examination of local current events,
 including the wildfires of last fall and the MTA/Grocery strikes.  While he
 acknowledges the difficulty experienced by those directly impacted by the
 fires, the overall impact to the regions economy was mild.  The cost of the
 fires -- $1.5 to 2 billion dollars -- was only a fraction of the impact of the
 1994 Northridge Earthquake and the quake had little impact on the overall
 economy.  The wildfires may lead to some short-term declines in current
     The MTA strike lasted little over a month and other than the inconvenience
 experienced by users of mass transit, will have little other impact, other
 than to discourage people from relying on public transit at a time when the
 County is attempting to increase ridership to reduce freeway traffic.  The
 grocery strikes are more significant from a numerical standpoint than the MTA
 strikes.  Up to 30,000 workers are on picket lines, representing one half or
 one percent of the total workforce, decreasing the buying power of impacted
 families.  With no end in sight, the final impact is yet to be felt.
     Inland Empire and Bay Area
     Reports on the Inland Empire and Bay Area, written respectively by Michael
 Bazdarich, director, UC Riverside Forecasting Center, and Joseph Hurd, senior
 economist, UCLA Anderson Forecast, present a tale of two regions representing
 the best of times and the worst of times.  In the Inland Empire (San
 Bernardino and Riverside Counties) job growth continued on a steady pace
 throughout the recession and modest recovery and a stronger national economy
 will only spur stronger growth in the coming years.
     The Bay Area (including San Francisco, Oakland and San Jose) reveals the
 opposite.  Since the end of 2001, the Bay Area has lost 337,000 jobs.
 However, California has had a net increase of 51,000 jobs as a whole during
 that same period, netting a statewide loss of 286,000 jobs overall.  According
 to Hurd, these figures, "make it as plain as possible that the recession was a
 Bay Area event."  Hurd says that a rapid recovery for this region is unlikely,
 due to weakness in the housing market, the state's budget problems and
 irreversible losses in manufacturing.
     About UCLA Anderson Forecast
     The UCLA Anderson Forecast is one of the most widely watched and
 often-cited economic outlooks for California and the nation, and was unique in
 predicting both the seriousness of the early-1990s downturn in California, and
 the strength of the state's rebound since 1993.  Most recently, the Forecast
 is credited as the first major U.S. economic forecasting group to declare the
 recession of 2001.  Visit the UCLA Anderson Forecast on the Web at .

SOURCE UCLA Anderson School of Management