National Economy is “On the Mend” As GDP Grows Steadily and Payroll Employment Increases
In California, Slow Growth Expected Through 2011 As Jobs Slowly Return
Los Angeles, CA - March 9, 2011 - In its first quarterly report of 2011, UCLA Anderson
Forecast is cautiously sanguine regarding the national economy, as real Gross Domestic Product
(GDP) continues to grow at a steady pace and employment continues to increase. That said, the
recovery in the U.S. economy is still slow – and the recession cut jobs so deeply – that growth
will be insufficient to surpass the employment peak reached in early 2008 within the boundaries
of the current forecast, which runs through the end of 2013. The California forecast is slightly
weaker in the near term that it was in December with the unemployment rate predicted to be
substantially above the U.S. rate at the end of 2013.
The National Forecast
In a report titled “On the Mend,” UCLA Anderson Forecast Senior Economist David Shulman says,
“The U.S. economy is getting better. Slowly, in fits and starts, real GDP is growing and
employment is increasing.” With that, the Forecast calls for real GDP growth of 3.8% in the
current quarter, with 3% growth expected for the duration of the forecast’s 2013 horizon. The
Forecast also calls for payroll employment increases of 1.9 million in 2011, 2.6 million in 2012
and 3.0 million in 2013. But, as above, these increases in employment will not bring the U.S.
back to the employment peak of first quarter 2008.
According to Shulman, the economy is being propelled by strong increases in corporate spending
and software and that the impetus for this spending is coming from extraordinarily low interest
rates, a rapidly recovering stock market and investment incentives coming out of Washington D.C.
“Indeed,” Shulman writes, “independent of policy, investment is being spurred by technological
advances in wireless and cloud computing along with new natural gas drilling and technologies
that are reshaping the nation’s energy map. As a result, the real business investment share of
GDP will increase from 12.8% in 2010 to 15.4% in 2013.” Exports and the automobile sector are
also spurring the recovery, the latter a rebounding as pent-up demand spurs new car sales.
Housing (unlike autos, houses wear out slowly and don’t need replacing as often) and state and
local government lag other growing sectors. The forecast calls for only modest growth in housing
starts this year, though an improving employment sector will push housing starts to 1.5 million
(up from 586,000 in 2010) in 2013. Shulman also notes there is a “whiff of inflation in the air”
as commodity prices rise and that interest rates are expected to rise – both factors that could
slow the national economic recovery. "Because inflation will be higher than what the Fed now
thinks the Fed will end its zero interest rate policy in early 2012, and 10 year Treasury Bond
yields will soon normalize at rates above 4%," Shulman states.
The California Forecast
California’s forecast, authored by Senior Economist Jerry Nickelsburg, reflects the mixed signals
emanating from the State’s economic data. Job creation in California remains sluggish.
Nevertheless, California's unemployment rate is predicted to be substantially above the U.S. rate
at the end of 2013. The forecast actually calls for slower growth than was expected in the
December report and that near term slow growth means the unemployment rate in California will
remain at 10.5% next year. The latter part of the forecast (though 2013) calls for health care,
professional and business services, exports, and technology-related manufacturing sectors to
generate more robust growth. “Job creation,” Nickelsburg writes, “though more rapid in late 2011
and in 2012 and 2013, will not be fast enough to push the unemployment rate below double digits
until the start of 2013.”
The drivers of the recovery in California will be education, health care, exports and technology,
as well as residential construction. The expectation for 2011 is a growth in employment of 1.1%.
The bulk of this growth will obtain in the latter part of the year. The end of year growth will be
slightly faster than the U.S. as increases in U.S. consumption levels will be magnified in
California’s logistics industry and increases in exports to the growing economies of Asia will
disproportionately affect California. Employment growth is expected to speed up in 2012 and 2013
as the recovery takes hold. Real personal income growth is forecast to be 1.3% in 2011 and 3.7%
and 4.1% in 2012 and 2013 respectively. The unemployment rate has been stuck between 12% and 13%
throughout this year. Employment growth in 2011 and 2012 will only push unemployment down
marginally and we do not expect it to reach 9.7% until the 1st quarter of 2013 and we expect the
unemployment rate to remain elevated at 8.9% through 2013.
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.
About UCLA Anderson School of Management
UCLA Anderson School of Management, established in 1935, is regarded among the very best
business schools in the world. UCLA Anderson faculty are ranked #1 in "intellectual capital"
by BusinessWeek and are renowned for their teaching excellence and research in advancing
management thinking. Each year, UCLA Anderson provides management education to more than 1,600
students enrolled in MBA, Executive MBA, Fully-Employed MBA and doctoral programs, and to more
than 2,000 professional managers through executive education programs. Combining highly
selective admissions, varied and innovative learning programs, and a world-wide network of
35,000 alumni, UCLA Anderson develops and prepares global leaders.