Collapsing Fundamentals Drag Down California Economy

The U.S. and California state economies will move in tandem over the next few years, with income and employment deteriorating further before the housing market hits bottom, according to the UCLA Anderson Forecast for Orange County, which was released today. The UCLA Anderson School of Management produces the report annually. The forecast for 2009 is substantially more pessimistic than the outlook presented by UCLA Anderson in its third-quarter 2008 report on the economy, released at the end of September. That report did not forecast a recession but suggested that economic growth had stalled at about 1 percent growth in gross domestic product in the third quarter and would likely decline to 0 percent in the fourth quarter. Going forward, the report projected “below trend growth.” Today’s forecast focused on Orange County, just south of Los Angeles, as a microcosm of the state and the national economies. The report’s author’s indicated that employment in Orange County had collapsed and that it would take “five to six” years to recover. Residential real estate will not begin to recover until the second quarter of 2009 when home prices are expected to stabilize, said the report. In non-residential real estate, office markets will remain weak with persistently higher vacancy rates. With the continued decline in employment in Orange County, investment in non-residential structures will remain at low levels in 2009. Looking ahead, the report called for employment to begin a modest recovery late next year with finance, retail and housing labor markets having born the brunt of the downturn. In the years after 2009, employment growth will remain slow. The report expects non-farm job growth to increase 1.1 percent in 2010 and 1.5 percent in 2011.