LOS ANGELES, Sept. 8 /PRNewswire/ -- In a series of reports released
today, the UCLA Anderson Forecast slightly alters its short-term forecast and
warns of a potential national recession within two years. In California, the
growth pattern holds steadier with slow growth seen for the rest of this year,
followed by faster growth in 2005 and 2006. For the state, the key issue
remains the budget deficit and the forecast assumes some resolution involving
debt reduction. Any significant delays or postponements in bringing the
budget under control will negatively impact the state in both the short and
long-term. Job quality is the issue in Los Angeles as the creation of
"informal" jobs, which contribute less to the overall economy than do other
jobs outpaces more traditional employment.
The National Forecast
In a report titled, "U.S. Economy: Prelude to a Recession," UCLA Anderson
Forecast Senior Economist Michael Bazdarich breaks with a current Wall Street
consensus that believes the national economy is early in a growth period that
will only get stronger, and instead asserts that the underlying data reveal a
recovery that may be close to the end. "In chronological terms, the expansion
is still young," Bazdarich said, "and that supposed youth is what drives many
to think that strong growth will resume. However, in most relevant respects,
this expansion is very old, with the consumer, housing and even investment
sectors displaying all the vulnerabilities they would normally have only after
a long expansion."
Bazdarich, along with UCLA Anderson Forecast Director Edward Leamer, have
been warning for several years now that the recession-recovery cycle currently
being experienced in the national economy is unique among similar post-war
cycles. Historically, consumer spending dropped during such periods and
powerful recoveries were fueled by the return of strong consumer activity. In
the current scenario, consumer spending on housing, cars and other goods has
been maintained throughout and there is no boost in consumer spending to spur
the economy into high-growth mode. Along with an essentially maxed-out
consumer base, Bazdarich says that current stock-flow dynamics and investment
and inventory levels also mirror that of an "old" recovery.
In a best-case scenario, the current slow patch in the recovery holds for
two years or so, when more robust capital spending should reduce recession
risk. In the meantime, a consumer-led pull back could induce a recession
within the next two years.
The California Forecast
The state budget is the big issue in California, as the essential
structural imbalance -- spending more than revenue income -- remains. In his
overview of the state's economy, UCLA Anderson Forecast Senior Economist
Joseph Hurd notes that the imbalance is being "funded" by state borrowing of
$15 billion (based on Proposition 57) from cities and counties across
"The economic implications of the budget mess are not good," Hurd said.
"In the short run, cities and counties will shed employment due to the 'loans'
they are being forced to give the state. We expect total job losses of about
45,000 at the state and local level in 2004 and 2005."
Hurd's report, titled "California: Growing and Growing ... But a Few Fixes
are Needed," assumes that Sacramento "solves" the budget problems by the next
fiscal year. He speculates that it will be a combination of taxes, user fees
and spending cuts, while "California becomes the gambling capital of the
nation (and partly lives off casino income)."
Not solving the budget issue has a big impact on the annual long-term
forecast, as the postponement of building maintenance and other infrastructure
projects will be put off indefinitely.
The Los Angeles Forecast
In Los Angeles, Senior Economist Christopher Thornberg focuses on job
creation and the quality of jobs being created in Los Angeles County. In a
report titled, "The Los Angeles Report: Good Jobs, Bad Jobs," Thornberg says
that Los Angeles has added 24,000 jobs since the start of the year. These
jobs are mostly in retail trade, finance and insurance, professional and
technical services, administrative support, transportation and warehousing,
and leisure and hospitality industries. Key sectors such as manufacturing,
information and government have performed poorly, while construction and
healthcare are flat.
About UCLA Anderson Forecast
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 UCLA Anderson Forecast on the Web at
SOURCE UCLA Anderson School of Management