Tuesday, September 20, 2011

LA Times: UCLA study predicts California won't slip back into recession

California won't slip back into recession, UCLA study predicts

Despite U.S. economic woes, another recession is unlikely, according to a quarterly forecast by UCLA researchers. The state's jobless rate is expected to remain around 12% through next year.

Economic forecast
Those who have fallen on hard times wait for lunch at the Union Rescue Mission in Los Angeles. California's 12.1% unemployment rate will remain around 12% through next year, according to a UCLA forecast. (Photo by Luis Sinco, Los Angeles Times / September 20, 2011)

September 20, 2011, 1:01 a.m.
 
The national economy is in "far worse" shape than it was just three months ago, but neither the U.S. nor California is expected to slip back into recession, according to UCLA researchers.

The U.S. economy has "stalled," the job market is "horrible," and even a "modest shock" could trigger a full-blown recession, according to a quarterly economic forecast released Tuesday by UCLA's Anderson School of Management.

But in a nuance that only an economist could appreciate, a recession is unlikely because the forces that normally spur downturns, such as a falloff in home construction, are already so weak that further deterioration won't do that much additional damage.

A sudden drop in exports or consumer spending could trigger a recession, though it is considered unlikely at the moment, according to the report.

The U.S. growth rate is expected to pick up between 2.5% and 3% by mid-2012 from 0.9% currently, with about 150,000 net jobs being added each month compared with no job growth last month, forecasters said in the report.

But even that would be far too tepid to make a dent in the stubbornly high unemployment rate, which is projected to drop to only 8.6% by the end of 2013 from the current 9.1%.

"You could make a reasonable argument that we never had a recovery and we're, in fact, in one long slump," said David Shulman, a UCLA senior economist.

Economists at UCLA are the latest to weigh in on whether the U.S. will lapse into another recession. Last week, the chief economist at Moody's Investors Service put the chances of entering a double-dip recession within the next year at 40%.

Closer to home, the outlook for California's economy is similar to that of the nation. The most notable development in the state is the widening gap between the fortunes of relatively prosperous coastal areas and those of far more challenged inland regions, economists said.

Coastal areas with knowledge-intensive industries, such as Silicon Valley, have decent growth prospects. Areas such as the Inland Empire and San Joaquin Valley, however, are facing "the specter of long-term economic stagnation" and employment levels that may not return to their pre-recession highs until 2017 at the earliest and perhaps much longer, according to the report.

The outlook for inland parts of the state is clouded by the threat of a population decline in those areas, which would exacerbate the slump in housing.

Construction employment accounts for about 7% to 9% of all jobs in the Inland Empire and San Joaquin Valley, according to the report. But a combination of economic and demographic factors means the demand for new housing in those areas will remain weak for years.

Many of those workers may have to retrain for jobs in other industries, a lengthy process that could weigh on those areas for a number of years, said Jerry Nickelsburg, a UCLA senior economist.

For all of California, UCLA predicts virtually no growth this year, followed by anemic rates of 0.7% next year and 2.1% in 2013.

The state's 12.1% unemployment rate will remain around 12% through next year and will average 11% in 2013. It won't drop to the single digits until 2014, according to the report.

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