California's Economy Sluggish, Says UCLA Forecast
Economic growth in California will stumble along at a sluggish pace for the rest of this year while unemployment won’t dip below 10 percent until sometime in mid-2013, according to the “UCLA Anderson Forecast” released on June 15.
Economists at the University of California, Los Angeles said the measured recovery in the housing market and layoffs by state and local governments will keep unemployment, now at 11.9 percent, at an average of 11.7 percent this year and at #8232;10.9 percent next year.
“Unemployment rates will remain elevated throughout the next three years,” wrote economist Jerry Nickelsburg.
Consumer spending has taken a hit from elevated gas prices, stubbornly high unemployment rates and dwindling housing prices.
“The demand for retail-oriented real estate can be characterized as a tale of two consumers,” wrote economist David Shulman in the economic report. “The higher-end consumer, benefiting from rising stock prices and employment stability, is back while the lower-end consumer is being ravaged.”
While retail sales have increased in recent months, the growth rate is still not as robust as it was in the mid-2000s as consumers continue to retrench.
In addition, e-commerce continues to take its toll on bricks-and-mortar stores, as seen by the bankruptcies of Blockbuster video stores and bookseller Borders Group Inc.
“As a result, retail real estate, which was the investment darling of the last decade, faces a far more difficult future going forward,” Shulman observed.
Import growth at the two ports in the Los Angeles area—the Port of Los Angeles and the Port of Long Beach—could also be hit by slower consumer demand as well as a gradual recovery in the Japanese economy. That, in turn, will impact occupancy rates in the various warehouses located in Southern California’s Inland Empire.
“On balance, we only expect modest growth in employment supporting the ports for the rest of this year and a more robust rebound in the coming year as gasoline prices and budget adjustments lead to a resumption of consumer spending on the goods flowing through California’s ports,” Nickelsburg said.
The housing market in California isn’t expected to see much recovery for at least another year. “Home building in California remains at the historically low levels it has been at since the end of 2008, and there are no signs of that changing soon,” Nickelsburg wrote.
When consumers return to the real estate market, there will be more requests for apartments and condominiums near the coastal areas rather than big houses in the inland areas. That is because high gasoline prices are crimping long commutes. Also, California has a fairly young population, which means more apartments, rather than houses, will be in vogue.—Deborah Belgum
