California’s economy continues to grow but might begin to weaken along with slower national growth, according to a new forecast by the University of California–Los Angeles’s (UCLA) Anderson School of Management.
While uncertainty remains about the next 12 months, UCLA’s forecasters don’t predict a recession in the next year. However, the U.S. economy is likely to see slower growth and continued high inflation, according to the Sept. 21 report.
“The UCLA Anderson Forecast does not expect a recession at this time, but the likelihood of a recession during the next 12 months has increased,” Leo Feler, the Forecast’s senior economist, wrote in the report.
Feler thinks that there’s a less than 50 percent chance that the country will enter a recession in the next year. Numerous other economists, including those at the Conference Board, Fannie Mae, and First Trust, all flatly forecast a recession—a reflection of the disparate views of the economy in the current inflationary period.
The possibility that the Federal Reserve will provide a “soft landing” as the economy slows also has decreased, Feler says. A soft landing would slow but not crash the economy.
The Fed has continued to take an aggressive path to combat inflation, raising its benchmark interest rates by 0.75 percentage point on Sept. 21 to a range of 3 percent to 3.25 percent. That was the third consecutive increase of that magnitude—the Fed also raised rates in June and July by 75 basis points—and some forecasters say the agency will do so again before year’s end.
National employment growth, relatively robust consumer spending, fewer supply chain kinks, and significant government spending on defense and renewable energy are some factors that make a recession less likely, Feler said.
“As bad as the economy seems in the U.S., it is worse around the world,” he wrote. “With rising U.S. interest rates and global instability, investors have poured money into the U.S., causing the dollar to appreciate against other currencies. That appreciation causes U.S. exports to be more expensive around the world.”
In California, UCLA forecasters expect positive gains.
On average, the state’s households are becoming wealthier than those of other states, they said. Employment is rising, although the sectors where jobs increased have changed since the COVID-19 pandemic.
“Overall, the data reflect broad-based hiring with leisure and hospitality, health care and social services, technology and construction posting solid gains,” the forecast’s director, Jerry Nickelsburg, wrote in his outlook for the state. “Increases in defense spending and the continued demand for tech will likely keep the economy growing.”
Unemployment from July 1 to Sept. 30 is expected to be 4 percent. The averages for 2022, 2023, and 2024 are expected to be 4.3 percent, 4.4 percent, and 4.8 percent, respectively.
Also, Californians are making less money this year because of inflation, according to the report.
Real personal income, which is the amount of money a person makes after accounting for inflation, is forecast to decline in California by 5.5 percent this year but rebound slightly in 2023 by 0.3 percent. By 2024, real personal income is expected to grow by 2.4 percent.
Nickelsburg predicts a slowing in employment growth. A forecasted increase of 4.9 percent this year is forecast to drop to 1.5 percent next year and 0.7 percent in 2024. The forecast predicts nonfarm job growth of 5.3 percent this year, falling to 1.7 percent next year and 0.8 percent in 2024.
Housing prices have also fallen in the state, with the median price of a single-family home slipping 7 percent below its peak. However, high housing costs have contributed to California’s outward migration.
“California’s loss in population is more related to housing costs than economic malaise,” Nickelsburg wrote.
However, the number of people leaving the Golden State may slow as the price of housing in other states rises, he said.
