UCLA Anderson Forecast predicts 'very sluggish growth' accompanied by high unemployment

Sep 15, 2010 By Hilary Rehder

In its third quarterly report of 2010, the UCLA Anderson Forecast predicts "very sluggish growth" for the foreseeable future as the U.S. economy continues to recover from the recession. As for the California economy, the state is looking at a difficult period ahead as it attempts to regenerate not only the 1.3 million jobs lost during the recession but also create additional jobs needed for new entrants into the job market over the past two-and-a-half years.

The National Forecast

In a report titled "The Uncertain Economy," UCLA Anderson Forecast senior economist David Shulman offers two explanations for the ailing national economy. The first is the "balance-sheet hypothesis" put forth by the Forecast nearly two years ago, which is analogous to the work done by economists Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard University. These economists noted that recoveries from the bursting of debt-fueled financial bubbles are invariably slow and are associated with high unemployment rates and rising government debt. Given that, Shulman suggests that a quick recovery is not likely.

Shulman also writes that, "the recovery from the balance-sheet recession is being exacerbated by an extraordinary increase in policy uncertainty, which is amplifying the usual economic uncertainties associated with recessions." Simply put, he believes that the nation's businesses are unsure of the implications of their investments — whether new hires or new computers — given the uncertainty surrounding tax, environmental, energy, financial, labor and health care policies.

"At present," Shulman said, "business firms can only make the wildest guesses as to what corporate and individual taxes will be next year, and, for that matter, three years from now what the cost of health care will be, whether or not there will be a revived cap-and-trade policy with respect to or whether the Environmental Protection Agency will step in with regulations of their own absent a statute, and whether it will be easier or more difficult to hedge risks with financial derivatives."

Given these factors, the Forecast expects very sluggish growth accompanied by high unemployment.

"As time passes," Shulman said, "the economy will naturally heal and the policy uncertainties will resolve themselves to allow growth to return to a 3 percent path, causing unemployment to begin a long-awaited downward trajectory. We forecast that these more ebullient trends will become noticeable by 2012."

The Forecast predicts the national unemployment rate will be 9.7 percent by year's end and 9.5 percent in 2011.

The California Forecast

Considering the California economy, UCLA Anderson Forecast senior economist Jerry Nickelsburg writes that "all the evidence suggests that California is ever so slowly coming out of the recession … but slow growth means that while the groundwork for faster growth is being put down, there is not a lot or perceptible change."

The Forecast implies that the weak growth will continue in the absence of any imminent changes in consumer or business behavior. According to the report, the very slow growth period will remain until next year. The recovery from the recession will be driven by education, health care, exports and technology and, to a lesser extent, growth in the battered residential construction sector.

On an annual basis, the expectation is that California employment will contract by -0.7 percent in 2010 and that once employment growth returns in 2011, employment will begin to grow faster than the labor force, at a 1.9 percent rate, and the unemployment rate will begin to fall.

Real personal income growth is forecast to be 0.6 percent in 2010, 2.2 percent in 2001, and 4.1 percent in 2012. The unemployment rate — currently at its high point of 12.6 percent — is expected to fall slowly through the balance of 2010 and average 12.2 percent for the year. The won't fall below double digits until 2012.

Explore further: 3 Qs: Economist makes the case for new quasi-experiments as a way of studying environmental issues

More information: uclaforecast.com/

add to favorites email to friend print save as pdf

Related Stories

Recession may be over, but recovery will be gradual

Nov 19, 2009

(PhysOrg.com) -- With the severe national recession of the past two years finally behind us, the pace of economic recovery will be slow and unemployment will remain high for quite some time, say economists at the University ...

Recommended for you

Which foods may cost you more due to Calif. drought

Apr 17, 2014

With California experiencing one of its worst droughts on record, grocery shoppers across the country can expect to see a short supply of certain fruits and vegetables in stores, and to pay higher prices ...

Performance measures for CEOs vary greatly, study finds

Apr 16, 2014

As companies file their annual proxy statements with the U.S. Securities and Exchange Commission (SEC) this spring, a new study by Rice University and Cornell University shows just how S&P 500 companies have ...

Investment helps keep transport up to speed

Apr 16, 2014

Greater investment in education and training for employees will be required to meet the future needs of the transport and logistics industry, according to recent reports by Monash University researchers.

User comments : 0

More news stories

Poll: Big Bang a big question for most Americans

Few Americans question that smoking causes cancer. But they have more skepticism than confidence in global warming, the age of the Earth and evolution and have the most trouble believing a Big Bang created the universe 13.8 ...

Finnish inventor rethinks design of the axe

(Phys.org) —Finnish inventor Heikki Kärnä is the man behind the Vipukirves Leveraxe, which is a precision tool for splitting firewood. He designed the tool to make the job easier and more efficient, with ...

Making graphene in your kitchen

Graphene has been touted as a wonder material—the world's thinnest substance, but super-strong. Now scientists say it is so easy to make you could produce some in your kitchen.