Copyright© 2005 by School Services of California, Inc.

                                      Volume 18                   For Publication Date: December 16, 2005             No. 25

UCLA Says No Recession  

Economists with the UCLA Anderson Forecast report that they do not foresee a recession in California ’s near term future. In their December 2005 quarterly forecast, the group noted that, while state employment has been stagnant since August, they do not see absolute job losses—a condition of a recession—any time soon. Instead, UCLA projects two years of anemic growth. Inflation-adjusted personal income is forecast to grow 3.1% in 2005, slowing to 2.6% in 2006 and 2.2% in 2007.  

The forecasters presented their assessment of the state economy by offering the following question: “Is the glass half empty or half full?” Their answer, while somewhat frustrating, is to offer evidence that it is both. On the one hand, employment growth has been disappointing, with only 9,300 jobs added between August and October of 2005 as compared to 44,800 jobs added over the same period in 2004. For 2005 payroll, employment is expected to grow 1.6%, the same rate of growth as the state population. Job growth is expected to slow to 1.1% in 2006 and dip even lower in 2007 to 0.8%.

On the plus side, however, is the improvement in taxable sales and overall state tax revenues. The forecast notes that taxable sales are up 8% for the second quarter of 2005 compared to the same quarter of 2004, and personal income is up 6.4% over the same period. In addition, the report cites the Legislative Analyst’s recent projections of higher-than-expected state revenues as supporting the “half full” view of the economy.  

Housing continues to be the big wild card, and the UCLA group did not offer a clear picture of the future on this issue. The forecast notes that all of the major counties in the Bay Area and Sacramento have seen declines in home sales in recent months, and the Southern California market is slowing. Their interpretation of these trends, however, does not lead them to conclude that the period of growth is necessarily over. The key variable for their forecast is employment. They conclude that if there are no widespread job losses, the housing market will see flattening prices and falling sales, not steep price declines. San Francisco represents the most troubling scenario, where the county saw job losses, a 20% drop in sales, and a 5% price decline since the May 2005 peak. San Diego county offers the more likely scenario in which prices plateau, but don’t fall.  

In summary, UCLA offers a murky forecast rather than a clear picture of the future—anemic growth but no recession. This outlook seems to stand in slight contrast to the Legislative Analyst’s recent report, which painted a more promising budget picture, one that showed an improvement in the state’s structural budget gap and potentially more money for public education. The next chapter in this story will be available in January when the Governor presents his state economic outlook along with his Budget proposals for 2006-07.  

—Robert Miyashiro