Anderson predicts likely recession

By Shauna Mecartea
Daily Bruin Contributor

The UCLA Anderson Business Forecast predicted gloomy economic
weather Wednesday and announced the high likelihood of an impending
recession.

“It is neither a recession or slowdown, but a
transition,” said Edward Leamer, director of the UCLA
Anderson Business Forecast at Korn Convocation Hall.

The transition involves the U.S. economy steering away from the
“Internet Rush” of 1996-2000 to a lower level of
sustainable economic growth in 2002, Leamer said.

The probability of a 2001 recession has increased 30 percent
since December 2000 to a striking 90 percent, according to UCLA
forecasters.

Leamer’s last daunting prediction in December turned out
accurate when the U.S. economy’s annual rate matched
Leamer’s prediction of 1.3 percent by the end of the fourth
quarter in 2000. The actual annual growth rate was a slow 1.4
percent.

While there are numerous forecasts released, the December
forecast proved the most accurate in the country.

According to the report, though a national recession is
expected, different regions of California will be affected. The
“high-tech” Bay Area will probably feel the recession
more than Southern California due to the recent investment slowdown
in information technology and software.

“We will most likely see not only a slowing of demand for
electronics, communications equipment and related products, but
also a weeding out of the less well-capitalized firms in these
industries,” said Tom Lieser, senior economist for UCLA
Forecast.

A rise in unemployment rates through 2002, a decline in home
prices in the Bay Area and slower home sales in Southern California
are all anticipated, Lieser said.

The energy crisis will have minimal effects on the impending
recession because most businesses are not fully dependent on the
energy system, Leamer said.

California’s incomes and employment rates will only be
affected if the recent brownouts and blackouts snowball into a
long-term electricity problem, according to some economists.

Reconstructing the electricity system to prevent the monopoly of
the wholesale market is needed, said Loretta Lynch, president of
the California Public Utilities Commission.

Programs that Gov. Gray Davis has enacted have aimed for
short-term price solutions, such as the 20-20 program that will
reduce electric bills by 20 percent if consumers cut their
electricity use by 20 percent.

The largest problem is that “there is no correlation
between price and demand” of energy, because California does
not have a competitive market, Lynch said citing a five-fold
increase in price within a five-day period despite increases in
demand.

While the effects of the energy crisis are discussed, Leamer
projects not a traditional recession, but a transition in economic
lifestyle.

The U.S. will leave the time of “mad dash” Internet
start-ups, borrowing from foreign countries, spending personal
savings to buy sports utility vehicles and other costly consumer
goods and resort to a new lifestyle that includes approaching
Internet start-ups in a more thoughtful way, using efficient small
cars and refusing foreign lenders, the forecast stated.

RECESSION PREDICTED The widely followed
Anderson School Business Forecast shows the odds of a recession
increasing dramatically in part because of the crash of the
Internet-related stocks. SOURCE: UCLA Anderson Forecast Original
graphic by VICTOR CHEN/Daily Bruin Web adaptation by MIKE
OUYANG/Daily Bruin