UCLA: Slow times ahead

The news from UCLA's Anderson Forecast isn't horrible, but it's far from wonderful. Here are the basics for California:

--Employment will contract by 4.3 percent in 2009 and 0.7 percent in 2010.

--Real personal income growth will decline by 2.7 percent in 2009, and then increase by 0.4 percent in 2010 and 2.8 percent in 2011.

--Unemployment will reach a high of 12.7 percent in the fourth quarter of 2009 and average 11.7 percent for 2010. It will remain in double digits until 2012.

UCLA economist Jerry Nickelsburg says the keys to the state's recovery are more exports (that means greater overseas demand), more spending at home (that boosts demand for Asian imports), more public works activity, and more business investment. It's a tall order, given all the skittishness about next year, but exports have been picking up and the federal stimulus is likely to boost activity in the public sector. As in other reports, UCLA chronicles a horrible first two quarters and a somewhat better last two quarters. Here's what he says about the recovery:

What is likely to be the case is something better than the last two recessions, but not as robust as those of the 70s and 80s. The increase in consumption we expect in the latter part of 2010 and 2011 will push up sales and use taxes and the growth in private sector profits, if not employment, will push up corporate and personal income taxes. The relationship between growth in personal income and growth in tax revenues demonstrates the amplifi cation and gives us a reasonable estimate, all other things equal, of 2010 fi scal year revenue growth in the 4% to 7% range.

The big imponderable is the state budget situation. The many delays in cutting state spending may turn out to be a good thing because it'll happen just as the rest of the economy is improving. California's government, "through its inability to act," might have prevented things from being even worse.

In the national forecast, economist David Shulman expects sluggish growth of 2 percent in 2010 and then 3 percent in 2011. U.S. unemployment will likely peak at 10.5 percent n the first quarter of 2010, then settle at or above 10.0 percent for the rest of the year. "We hypothesize that one reason for the high rate of unemployment," Shulman writes, "is that business firms who hitherto viewed office overhead costs as fixed, now view them as variable ... where in prior recessions much of the marketing, finance, research and administrative employees were generally immune from lay-offs, the new management regimes have made those functions vulnerable to severe cutbacks."

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
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