UCLA Anderson Forecast Sees California’s Economy Inching Ahead

If California’s economy were a race horse, it wouldn’t be winning any competitions at the Kentucky Derby soon.

The latest UCLA Anderson Forecast, released on Sept. 11, shows the state’s economy making slow progress with the operative word being “slow.”

“That we are entering the sixth year of expansion illustrates just how painfully plodding this recovery process has been,” said Jerry Nickelsburg, UCLA Anderson senior economist, who covers the state. “Even though the number of jobs in the state is now higher than at any time in the past, the state remains below its potential in output and employment.”

Still, the economist predicts that employment numbers will grow 2.4 percent in 2015 and 2.2 percent in 2016, which means that by 2016 California’s unemployment rate should drop to 5.7 percent.

Key industries that are looking strong are transportation and warehousing, nonresidential construction, and manufacturing of export goods.

UCLA economists believe international trade will grow, which bodes well for the Port of Los Angeles and the Port of Long Beach, the largest port complex in the United States, which is responsible for more than 40 percent of all cargo-container traffic that enters the United States.

One curve ball to all of this is that the world economy is still struggling. Japan and Germany both had economic contractions in the second quarter of this year. France and China have seen less than robust growth.

France just announced it only expects its economy to inch up 0.4 percent this year and 1 percent in 2015. China, with the second-largest economy in the world, has told world leaders it expects its GDP to move along with 7.5 percent growth, which is excellent by Western standards but subpar compared with previous years when China’s economy grew at 10 percent and 11 percent.

This all means that California will see more trade expansion on the import side of the equation.

Although the housing industry won’t be going gangbusters next year, there will be a modest 5 percent rise in home starts in 2015, Nickelsburg predicted.

On the national front, UCLA Anderson Senior Economist David Shulman believes there will be modest inflation, rising 2 percent or more over the next two years. Inflation’s growth will be driven by a rise in residential rents and increasing healthcare costs.

The Federal Reserve, Shulman said, could raise interest rates by March 2015, responding to declining unemployment and rising inflation. The sectors expected to fuel the country’s growth in the next few years include housing, nonresidential construction, and investment in equipment and software.

The nation’s gross domestic product should rise by 3.1 percent in 2015 and by 3.4 percent in 2016.