As of Thursday, June 18, 2015
With the economy still ticking along, the unemployment rate in California and the rest of the country will continue to drop through 2016, according to the latest UCLA Anderson Forecast.
Traditionally, California’s unemployment rate is slightly higher than the rest of the nation because it is the most populous state in the country and there are a fair amount of seasonal farm workers. Currently, the state unemployment rate stands at 6.3 percent while U.S. unemployment is doing better at 5.5 percent.
By the end of 2015, the national unemployment rate will shrink to just below 5 percent while California’s unemployment rate will hover around 6.2 percent. The state’s economy should receive a boost by burgeoning growth rates in construction, automobiles and business investment as well as more strength in consumer demand.
Even though lower gasoline prices have not translated into large upswings in consumer spending, the economy will see a 3 percent boost in gross domestic product by the third quarter. “We have yet to see the approximately $150 billion annualized reduction in gasoline prices flow through to consumer spending,” said David Shulman, senior economist with the UCLA Anderson Forecast.
Instead of spending that money, consumers have been paying down debt and contributing to their savings accounts. Shulman expects consumers to eventually start hitting the stores again once they feel comfortable with their economic outlook. He said housing and equipment investing will help to power economic growth.
The one big question on the horizon is will the Federal Reserve start raising interest rates? Shulman believes a slight interest rate uptick will occur in September. “For those who fear the impact of higher, short-term interest rates on the stock market, we would remind them that history suggests that it takes several rate hikes to cause a significant correction in stock prices,” Shulman said.
On the California front
UCLA Anderson Senior Economist Jerry Nickelsburg said California should see its unemployment rate dip to 5 percent by 2017. There are still a number of long-term unemployed who have been out of jobs since the devastating recession hit in 2008. Many of those workers were in their 50s and are now nearing retirement and see little benefit in gaining new job skills for different jobs.
“The current economic expansion has had an unusually large spike in the number of long-term unemployed,” Nickelsburg said.
Many of those jobs may not return in the near future due to the downturn in manufacturing, shrinkage of the construction sector bloated by the housing bubble that burst in 2007, and shifts in the finance, legal and professional services sectors.