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June 7, 2019 Comments Off on UCLA Anderson Forecast: Economy May Be Weaker Than It Looks Views: 1363 California News, Top California

UCLA Anderson Forecast: Economy May Be Weaker Than It Looks

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The latest UCLA Anderson Forecast offers new recession predictions based on the most recent GDP data and the most recent bond market data. While the U.S Department of Commerce release of a 3.1% rate for GDP in the first quarter was celebrated as evidence there is no recession in the near future, a closer look at the details behind that 3.1% number leaves little reason for celebration. Similarly, recent employment data may not appear as robust as reported, which affects the outlooks for the nation and California.

UCLA Anderson Professor Emeritus Edward Leamer says, “The effect of the first quarter of 2019 data is to increase the recession probabilities from near zero to 15% for the next year, and to between 24% and 83% for the year after that. In addition, the expected number of quarters remaining in this expansion falls from 7.1 to 5.5 when the first quarter of 2019 data are included. That is just one quarter beyond a single year. In other words, “don’t worry about the coming year; worry about the year after that.”

Leamer’s conclusion: “Don’t celebrate the 3.1% GDP growth estimate for the first quarter of 2019.” That data actually increases the risk of a recession in the next couple of years.

UCLA Anderson Forecast senior economist David Shulman sees very modest changes to the March 2019 national economic forecast. Based on a large inventory build-up, a substantial decline in imports, surprising strength in exports and a bulge in state and local spending on road repairs associated with this winter’s storms, Shulman describes a “3-2-1 economy, where growth on a fourth-quarter-to-fourth-quarter basis was reported at 3.1% in 2018 and is forecast to be 2.1% and 1.4% in 2019 and 2020, respectively. For 2021, we are forecasting a rebound to 2.1%.”

Concurrently, Shulman warns that “when the economy slows to 1% growth, the risk of a recession becomes very real, with the second half of 2020 being most problematic.

On the state front, the Forecast notes California’s rapid job growth, with full employment for the past year, is slowing down. This is primarily based on employers’ having a hard time finding qualified new employees. However, employment is only part of the picture.

UCLA Anderson Forecast director Jerry Nickelsburg says, “The slowing growth in contracting sectors, such as non-durable goods manufacturing and retail, and more rapid growth in expanding sectors, such as information and scientific and technical services, have spurred faster state GDP growth than total employment growth would suggest.”

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