UCLA Anderson Forecast: Sustained 3 Percent Growth by Second Quarter of 2014, 200,000 Jobs Added per Month as Unemployment Rate Declines to 6 Percent by End of 2015

California Remains Split as Coastal Areas Continue to Lead Recovery and Inland Areas Lag Behind

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Dec 05, 2013, 04:00 ET

LOS ANGELES, Dec. 5, 2013 /PRNewswire/ -- In its fourth and final quarterly report of 2013, the UCLA Anderson Forecast's outlook for the United States asserts that the national economy is "growing despite the self-inflicted wounds caused by the 16-day partial shutdown of the federal government and the botched rollout of the Affordable Care Act's insurance marketplace affecting the giant healthcare sector, which accounts for 18 percent of the economy." Real growth is expected to be a tepid 1.8 percent in the current quarter, but the Forecast calls for a "sustained 3 percent growth path by the second quarter of next year." In such an environment, the economy will be on track to add approximately 200,000 jobs per month and the unemployment rate will decline to about 6 percent by the end of 2015.

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In California, the economic picture remains split as the gap between the coastal and inland areas widens. Along the coast, from Marin to San Diego, including a sliver of Los Angeles County, employment gains are outpacing the nation; over the past 12 months Silicon Valley has created payroll employment at twice the U.S. rate. But a look inland shows a different picture: the Inland Empire and the Sacramento Delta regions are growing at a sub-par rate, and the East Bay and San Joaquin Valley regions are showing little to negative growth.

The National Forecast

In the December Forecast report, UCLA Anderson Forecast Senior Economist David Shulman writes that as long as the federal government does no harm, growth in the U.S. economy will be sparked by strength in the housing and automobile sectors, combined with increased business spending and an end to the dramatic drop in federal purchases. Taken together, these factors are expected to put the economy on track to a 3 percent growth path by midyear 2014 and bring the unemployment rate down to about 6 percent by yearend 2015. Policy interest rates will stay low throughout 2014, but with inflation rising to slightly above 2 percent (due to rising housing and health care costs, some of it coming from the implementation of the Affordable Care Act), it is expected that the zero interest rate policy of the Fed will come to an end in the spring of 2015.

The California Forecast

The California forecast report, authored by Senior Economist Jerry Nickelsburg, takes another look at the split between the state's coastal haves and its inland have-nots. Taken as a whole, California has just about recovered all of the jobs lost during the most recent recession. In total, (payroll, farm and self-employed) jobs in California declined by 1.065 million, but rebounded by 1.044 million through October 2013. But a look at payroll jobs alone reveals that only 0.848 million out of 1.313 million lost jobs have been recovered. This suggests Californians are creating their own jobs by starting new enterprises at faster rate than established businesses are hiring. The vast majority of employment gains are found in communities along the coast, while job growth remains stagnated in inland California, which Nickelsburg loosely compares to Appalachia, a region known for no growth and low wage jobs from 1960 through 1990. Nickelsburg does note some bright spots inland, including Kern County's energy boom and the new medical school at the University of California, Riverside, which will begin to generate higher-education jobs as well as a cluster of health care related jobs.

The forecast for 2013 calls for total employment growth (payroll, farm and self employed) of 2.4 percent, and for 2014 and 2015 it is 1.5 percent and 2.0 percent respectively. Nonfarm payroll employment is expected to grow at 1.7 percent, 1.8 percent and 2.2 percent for the three forecast years. Real personal income growth is forecast to be 0.6 percent in 2013 followed by 3.2 percent and 3.1 percent in 2014 and 2015. Unemployment will fall through 2013 and will average approximately 8.9 percent for this year. In 2014, the unemployment rate is forecasted to drop to 8.2 percent on average, over one percentage point higher than the U.S. forecast and then to 7.3 percent.

Additional Report

In a companion piece, UCLA Forecast economist William Yu continues his examination of the First 5 L.A./UCLA City Human Capital Index, comparing all major cities in the United States. The paper then looks closely at Los Angeles County, including which areas are more prosperous and which are not, and the links between economic performance and human capital level in L.A.

The report offers three conclusions. First, L.A.'s human capital is behind other major cities, though it has improved slightly in the past two years. Second, there is a tale of two cities, as parts of L.A. lead the country in human capital while other areas of the county are among the nation's worst. Finally, within L.A. County, regions with high human capital will predict higher income levels, higher home values and higher employment, while regions with low human capital predict just the opposite.

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, 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, Global Executive MBA for Asia Pacific, Global Executive MBA for the Americas, Master of Financial Engineering, 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. Follow UCLA Anderson on Twitter at http://twitter.com/UCLAAnderson or on Facebook at http://www.facebook.com/uclaanderson.

SOURCE UCLA Anderson School of Management