UCLA Anderson Forecast: National Economy on the Rise; California Employment Expected to Improve

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Mar 13, 2013, 04:00 ET

LOS ANGELES, March 13, 2013 /PRNewswire/ -- In its first quarterly report of 2013, the UCLA Anderson Forecast's outlook for the United States says that the country's Gross Domestic Product is poised to surpass the 2% annual growth rate of the past four years and reach 3% by 2014. The housing and automobile sectors are the biggest contributors, together with renewed growth in business construction and exports. The economy gained an average of 181,000 jobs a month in 2012. An equivalent gain is expected in 2013 with acceleration to 200,000 jobs a month in 2014 and 220,000 in 2015. As a result, by the end of 2015, the unemployment rate will fall to about 6.5%.

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The forecast in California for 2013 and 2014 is not much different than December's prognostication, with adjustments for recent data. Total employment growth for 2013, '14 and '15 is expected to be 1.6%, 2.2% and 2.3% respectively; non-farm payroll employment will grow more slowly at 1.4%, 2.1% and 2.3% for the same three.

The National Forecast

In his March Forecast report, UCLA Anderson Forecast Senior Economist David Shulman asserts that following the nation's slowest postwar recovery from a recession on record, the national economy is beginning to "ramp up." While Shulman's forecast says that the economy will grow at 1.9% in 2013, 2.8% in 2014 and 3.1% in 2015, it's important to keep in mind that these rates of growth are still well below the typical 4%-6% rates of growth associated with prior recoveries. Along with higher rates of growth, the forecast calls for inflation in excess of 2% in 2014 and 2015, "as the Fed's extraordinary monetary policies catch up to a slow productivity growth economy."

According to Shulman's essay, titled "Slowly Ramping Up," growth in the national economy will be led by a rapidly recovering housing market and continued strength in light vehicle sales. Shulman notes that the housing sector, which led the downturn, is now leading the recovery. Housing starts totaled 718,000 in 2012, up 169,000 from 2011. As a result of low prices and mortgage rates, housing remains affordable. These factors, coupled with pent-up demand, lead Shulman to conclude that housing starts will exceed 1 million in 2013 and should reach 1.35 million in 2014. Recent strength in automobile sales is expected to continue.

The California Forecast

In the California forecast report, authored by Senior Economist Jerry Nickelsburg and titled "Is California at an Inflection Report?" the author examines whether or not the state has "lost its competitive edge" as a result of changes since the beginning of the most recent recession. Nickelsburg's conclusion: not likely. "What we find is that the recent data on non-farm employment shows no indication of a widening gap between California and other states. Moreover, over the last ten years exports through California's air and sea ports have held their own in the world marketplace." The implication: the Forecast's outlook calls for slow, steady but unexceptional economic growth in the current year with gradually accelerating growth in the following two years.

Nickelsburg writes that the factors which have driven California employment and income growth to higher rates than the U.S. remain in play. He says that as the world economy improves, and as investment in the U.S. improves, California will once again have a disproportionate share of the improvement. With that in mind, real personal income growth is forecast to be 1.4% in 2013, followed by 3.6% in 2014 and 3.3% in 2015. Unemployment will fall through 2013 and will average about 9.6% this year. In 2014, the unemployment rate is expected to fall to 8.4% and then to 7.2% in 2015.

Additional Reports

In addition to the forecast reports, the latest release by the UCLA Anderson research center includes two additional essays, one by Economist William Yu and the other by Senior Economist Steve Oliner. In his essay, "Human Capital: The Key to Los Angeles' Long-Term Prosperity," Yu finds that L.A. has fallen behind other cities in terms of income and employment growth for several decades. Yu concludes that the low level of human capital is the main reason for L.A.'s lag. He suggests that investing in early childhood education for disadvantaged children would be the most effective way to improve L.A.'s competitiveness in the long run.

Oliner examines productivity and potential output growth in the U.S. In his conclusion, he writes that "productivity growth in the United States has been anemic since 2004, due in large part to a smaller contribution from the use and production of IT capital." He adds that the financial crisis and its aftermath likely have held back gains in productivity as well. Over the next five to ten years, he and other analysts expect productivity growth to be somewhat stronger than the recent pace. Even so, the potential growth rate for GDP probably will be relatively slow because the retirement of the Baby Boomers will hold down the trend increase in labor input.

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. More recently, the Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at http://uclaforecast.com.

About UCLA Anderson School of Management

UCLA Anderson School of Management is among the leading business schools in the world. UCLA Anderson faculty members are globally renowned for their teaching excellence and research in advancing management thinking. Each year, UCLA Anderson provides a distinctive approach to management education to more than 1,800 students enrolled in its MBA, Fully-Employed MBA, Executive MBA, Global Executive MBA for Asia Pacific, Global Executive MBA for the Americas, Master of Financial Engineering, doctoral and executive education programs. Combining selective admissions, varied and innovative learning programs, and a world-wide network of 37,000 alumni, UCLA Anderson develops and prepares global leaders. Follow UCLA Anderson on Twitter at http://twitter.com/UCLAAnderson, or on Facebook at http://www.facebook.com/uclaanderson

SOURCE UCLA Anderson Forecast