Anticipating a Coronavirus Vaccine, UCLA Anderson Forecast Expects Robust Economic Recovery to Begin in Spring 2021
In California, the rebound will be led by tech, residential construction and logistics sectors
LOS ANGELES, Dec. 9, 2020 /PRNewswire/ -- The quarterly UCLA Anderson Forecast anticipates positive economic news on the horizon.
After the COVID-19 pandemic reached the U.S., the Anderson Forecast's March report was followed by two downward revisions, and the June and September releases charted the pandemic's impact on the California and national economies. The December forecast offers hope of a robust recovery from the current recession, based on the assumption that mass vaccinations would clear a path toward a new, productive normalcy for many industries.
However, that good news is tempered by predictions of a rough winter, as economic growth remains stalled by measures intended to prevent rising spread of virus cases until vaccines become widely available.
The National Forecast
A year ago, the idea that recovery from a national recession would depend on mass vaccinations ending a pandemic was not on most economists' minds. But that's the scenario today, as the nation considers how to inoculate the population against COVID-19. The reopening of the economy is directly related to the population's ability to safely return to work. As a result, the latest UCLA Anderson Forecast report, written by senior economist Leo Feler, anticipates two more quarters of slow growth — seasonally adjusted annual rates of 1.2% for the fourth quarter of 2020 and 1.8% for the first quarter of 2021 — before robust growth of 6% in the second quarter of 2021.
After that, growth rates should remain above 3.0% well into 2023. "We expect the economy will reach its previous peak by the end of 2021," Feler writes.
Feler emphasizes that the outlook does not fully reflect the economic misery that so many are experiencing. Currently, 20.5 million Americans are receiving some form of unemployment insurance benefit. Nearly 9% of of U.S. residents live in households that are behind on their rent or mortgage payments, 12% live in households where there is not enough food to eat and 34% live in households where it has been difficult to pay for typical household expenses.
But a vaccine would help release pent-up consumer demand over the next year, leading to a strong recovery. The forecast anticipates that a surge in services consumption and continued strength in housing markets will propel the economy forward. Feler expects the housing market to remain hot through at least 2023, with housing starts already at their highest levels since 2007.
Even with a strong recovery beginning in the second quarter of next year, Feler expects only modest core inflation, around 2.1% to 2.2% per year. In addition, the unemployment rate is expected to improve only gradually, remaining above 5% through 2021 before falling to 4% by 2023. And as the economy adjusts to a post-pandemic normal, a few areas of weakness will remain, with more people working from home and more online commerce than before. For better or worse, some parts of the economy will never be the same, Feler suggests.
"Right now, the key issue is how we will make it through to an exuberant spring," Feler writes. "These next few months will be dire, with rising COVID-19 infections, continued physical distancing, and the expiration of social assistance programs. Additional timely fiscal relief would prevent unnecessary hardship and allow the economy to maintain the structural relationships that will help us recover more quickly once vaccines become widely available."
The California Forecast
The COVID-19 pandemic's outsized and unpredictable impact on California is expected to continue, at the very least, for the immediate future.
As Forecast director Jerry Nickelsburg and economist Leila Bengali write, "California has responded, as before, with more restrictive non-pharmaceutical interventions (NPI) via mask mandates, closures and gathering restrictions. We expect that to continue, particularly through the holiday season, as significant traveling by Americans has thus far presaged further increases in COVID cases. We also know that at least three vaccines are in the latter stages of testing and approval. Does this mean that we are out of the woods soon? The answer is maybe."
The economists assume that an elevated number of virus cases will persist and that caution will prevail regarding many traditional holiday activities, including in-store shopping, throughout the winter. "This will mean a weak growth rate through the balance of the year and into early 2021," they write. "For the purposes of our forecast we also assume that a large number of people will have received one of the vaccines by summer, ushering in the beginning of a return to normalcy."
The report notes that 1.37 million non-farm payroll jobs in California have been lost since October 2019. Although there has been a recovery of some of those jobs since April 2020, a handful of sectors will remain the state's weakest economic sectors, bearing the brunt of the state's employment losses: leisure and hospitality, retail and education.
The forecast for the state is that the technology sectors, residential construction and logistics will lead the recovery, and that post-pandemic California will grow faster than the U.S. as a whole, although the state's recovery is expected to begin later.
The economists expect the state's unemployment rate in fourth-quarter 2020 to be 8.9%, and the average unemployment rate to be 6.9% in 2021, followed by 5.2% in 2022 and 4.4% in 2023. They project total employment growth rates of 6.1% in 2021, followed by 3.4% in 2022 and 2.2% in 2023, and non-farm payroll job growth of 3.6%, 3.8% and 2.5% for the same three years.
Trends in Solar Panel Adoption
Bengali also wrote a companion essay about trends in the solar energy industry. The most recent data, from September 2020, indicate that 3.3% of net electricity generation in the U.S. came from solar energy. While solar still generates a relatively small fraction of the nation's energy needs, installation costs have come down, panel efficiency has increased and the ability to store solar energy using batteries has become more available — all of which have contributed to a growing number of solar panel system installations nationwide.
The essay reports that California produces and consumes more solar energy than any other state. In September 2020, 19.8% of net electricity generated in California came from solar.
The report also assesses whether certain factors influence homeowners' decisions to install solar panels. Bengali found that local weather patterns do not have a significant effect on those decisions, but peer influence does.
The Impact of Sea Level Rise on California Housing Markets
In a second companion essay, economist William Yu examines the effect of rising sea levels on California housing markets. In his report, Yu writes that the latest report from the United Nations' Intergovernmental Panel on Climate Change predicts that global mean sea level will likely rise between 0.95 feet and 3.6 feet by the end of the century.
Yu writes that 66,600 coastal California homes would be impacted if levels rise four feet, 19,000 homes if the rise is two feet and 10,900 if there is a one-foot increase. While the numbers are small compared to some other states, this loss of housing further impacts California's home affordability.
The UCLA Anderson December Forecast Conference: Climate Change | Business Change
In addition to presentations of the U.S. and California forecasts and the essays described above, the December 2020 Forecast Conference will feature several discussions and panels via webinar. The first panel, "More Water from the Ocean, Less from the Sky — Water Policy and Business," will be moderated by Eric Hoek, a UCLA professor of civil and environmental engineering, and director of the UCLA Sustainable LA Grand Challenge. Panelists will include: Kathy Jacobs, director of the Center for Climate Change and Adaptation at the University of Arizona; Ellen Hanak, vice president and director of water policy at PPIC; Mark Gold, executive director of the Ocean Protection Council and deputy secretary for ocean and coastal policy at the California Natural Resources Agency; and David Osias, a partner at Allen Matkins.
The second panel, "Business Adaptation to Climate Change," will be moderated by Magali Delmas, a professor at UCLA Anderson and faculty director of Impact@Anderson. Panelists are: Carla Peterman, senior vice president of strategy and regulatory affairs at Southern California Edison; Alex Bernhardt, director at Marsh & McLennan Advantage Group; Lauren Riley, managing director of global environmental affairs and sustainability at United Airlines; and Nora Pankratz, a postdoctoral research fellow at the UCLA Luskin School of Public Affairs.
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. The Forecast was credited as the first major U.S. economic forecasting group to call the recession of 2001 and, in March 2020, it was the first to declare that the recession caused by the COVID-19 pandemic had already begun. Visit UCLA Anderson Forecast at www.uclaforecast.com.
About UCLA Anderson School of Management
UCLA Anderson School of Management is among the leading business schools in the world, with faculty members globally renowned for their teaching excellence and research in advancing management thinking. Located in Los Angeles, gateway to the growing economies of Latin America and Asia and a city that personifies innovation in a diverse range of endeavors, UCLA Anderson's MBA, Fully Employed MBA, Executive MBA, UCLA-NUS Executive MBA, Master of Financial Engineering, Master of Science in Business Analytics, doctoral and executive education programs embody the school's Think in the Next ethos. Annually, some 1,800 students are trained to be global leaders seeking the business models and community solutions of tomorrow.
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