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National and Statewide Outlooks Anticipate Modest Growth in GDP,
Housing and Employment Next Year

LOS ANGELES (December 5, 2012) -- In its fourth and final quarterly report of 2012, the UCLA Anderson Forecast’s outlook for the United States says that Gross Domestic Product (GDP) will grow at less than a 2% annual rate through mid- 2013. After that, the forecast expects growth to pick up and exceed 3% for most of 2014 with housing activity leading the way. Unemployment will stay close to the current 7.9% rate in 2013, but gradually decline to 7.2% by the end of 2014. By the end of the forecast period, inflation is expected to be above the Fed’s 2% target, bringing to an end the zero interest rate policy that has been in place since late 2008.

In California, though the passage of Proposition 30 by California voters creates some risk and has some impact on the forecast, the outlook for 2013 and 2014 is not much different than the previously released September forecast, with numbers marginally lowered for 2013 and 2014 still seen as a year that California’s growth rate exceeds the nation’s.

The National Forecast

In the December Forecast report, UCLA Anderson Forecast Senior Economist David Shulman looks beyond the “fiscal cliff” (a colloquial expression describing the expiration of previously enacted tax cuts combined with some automatic spending cuts totaling about $600 billion—about 4% of the economy—scheduled to take effect in January 2013) and assumes that the executive and legislative branches of government will reach an agreement before the year’s end. If they don’t, “… according to the Congressional Budget Office, the economy will fall back into recession with unemployment returning to 9% late next year,” Shulman writes.

Even if a compromise is reached, considering the recent upward revision to the third quarter GDP data, “the near-term outlook for the U.S. economy continues to be characterized by modest growth,” Shulman writes. “Specifically, we are forecasting that real GDP will increase at an annual rate of only 0.7% in the current quarter and less than 2% growth in 2013’s first half.”

The California Forecast

The California report, authored by UCLA Anderson Forecast Senior Economist Jerry Nickelsburg, examines the economic consequences of Proposition 30, which Nickelsburg refers to as “the most important change in the Golden State since the September UCLA Anderson Forecast release.” On the positive side, writes Nickelsburg, Proposition 30 provides a way forward in funding state investment in education and providing at least some funding for the re-alignment of services. On the negative side, it does not address the issues of the way in which Californians fund state government for the long-run, which could make things worse rather than better.

Employment is expected to grow 1.3% in 2013 and 2.4% in 2014. Payrolls will grow at 1.4% and 2.2% in the respective forecast years. Real personal income growth is forecast to be 1.8% in 2013 followed by 3.1% in 2014. Unemployment will fall through 2013 and will average approximately 9.7% for the year. In 2014 it is expected that the unemployment rate will drop to 8.4% on average, a percent higher than the U.S. forecast.

Additional Reports

In addition to the forecast reports, the UCLA Anderson research center released a pair of essays by Economist William Yu. One presents a picture of the high variability of credit risk among California municipalities, a phenomenon rooted in home value fluctuations and public employee expenditures. The other is the First -5 LA/UCLA City Human Capital Index (CHCI): 2011 Update, which looks at the education level of human capital in cities and counties across the nation in 2011. Although LA’s CHCI has improved over the past several years, it still ranks near the bottom among the 30 largest metro areas.

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.

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