California’s Economy Charts Positive Growth Through 2018


As of Thursday, June 9, 2016

Job gains and slow, steady growth are the path for the country and California for the next few years, according to economists at the UCLA Anderson School of Management.

In their quarterly UCLA Anderson Forecast, released on June 7, economists at the business school predicted employment rolls in the United States and California will rise until at least 2018, as wages and inflation inch upward. Real growth in the U.S. gross domestic product should reach 1.7 percent this year, 2.8 percent in 2017 and 2.1 percent in 2018.

Growth will be driven by an increase in consumer spending and housing, coupled with the end of the current inventory correction.

UCLA Anderson Forecast Director Edward Leamer noted that the U.S. economy’s growth is charting a different path than in the past. From 1965 to 2005, the average annual growth rate of the nation’s GDP was 3 percent. Since 2009, the new corridor of annual growth has been 2 percent.

Employers in the United States will continue to hire workers at the rate of about 200,000 workers a month, leading to a steady national unemployment rate of about 5 percent.

At the same time, inflation is starting to inch up. “We are starting to see more evidence of inflation ahead and are forecasting interest rate increases to keep real rates of interest pretty constant,” Leamer said.

The UCLA Anderson Forecast predicts that the Federal Reserve will raise interest rates as early as July and bump it up one or two more times this year.

California will also see its workforce grow this year, said UCLA Anderson Senior Economist Jerry Nickelsburg.

“Employment in California has grown steadily and is now at record levels. The number of payroll jobs is now at 16.4 million and is 6 percent above its previous peak,” Nickelsburg wrote. “One might claim that this is not near enough since California’s population has grown by 9.5 percent since 2007 and the state is a bit away from that elusive full employment level. However, it is not the population per se but the age profile of that population that matters when considering full employment.”

Nickelsburg estimates total employment growth in California to be 2 percent for 2016, 1.6 percent for 2017 and 0.8 percent for 2018.

One of the hurdles to adding more workers is legislation raising the state minimum wage to $15 an hour by 2022 from the current $10 an hour, the extension of paid family leave and a change in the income level for overtime pay. “The rationale for these changes is laudable, but we should note that each time an intervention into a market occurs via regulation, a dislocation occurs. It might be small and it might be swamped by other effects of the intervention, but it surely occurs,” Nickelsburg wrote.

On the commercial real estate front, UCLA Anderson Forecast Senior Economist David Shulman notes that the seven-year bull market is coming to an end. “We are in no way forecasting a ‘crash’ but rather an extended period of sideways to down prices,” he wrote.

The cause of this is a less favorable financial environment along with increased supply and reduced demand. “Simply put, financial conditions will transition from being extraordinarily easy to just plain easy, making it unlikely for us to witness a repetition of the events of 2007–2009,” Shulman noted.