UCLA predicts rise in economy

According to the UCLA Anderson Forecast, the California state
economy will be making positive gains as predicted by economic
analysts and expected by California residents alike. Still, the
forecast predicts that those gains would be small due to negative
forces hindering the economy.

While most Wall Street analysts predict a return to normality
after the recession, says Mike Bazadarich, senior economist with
the UCLA Anderson Forecast, “we don’t see a recovery
coming because there is nothing to recover from.”

More specifically, the recession was not a typical recession
because the growth of the 1990s was atypical as well.

Bazadarich attributes the atypical growth of the 1990s to the
astronomical gains in Internet and stock options of that time,
which the state government benefited greatly from because of income
taxes and profit capital gains.

Consequently, when the stock market leveled off and spending did
not, a deficit resulted, Bazadarich explained.

It should be noted that the Southern California economy is
growing solidly, though slowly. Christopher Thornberg, senior
economist at the Anderson Forecast, refers to the Inland Empire and
San Diego regions as “gangbusters.”

Despite the cuts in the state budget, Southern California fares
better than the Bay Area because of the large defense sector
located here, writes Thornberg in “The Regional Report”
of the June Forecast.

The defense sector has seen a new surge in demand as a result of
the ongoing war on terrorism, and the conflict in Iraq, he
writes.

This budget deficit is one of the factors preventing the state
economy from picking up speed.

In “The California Economy in 2004 to 2006: Neither a
Tortoise, Nor a Hare,” Sr. Economist Joseph Hurd of UCLA
Anderson Forecast writes that Sacramento’s deferral of the
deficit through interest “”mdash; free borrowing from cities “”mdash;
does not ultimately solve the problem.

Ultimately, in 2006 and 2007, Hurd writes in the report,
“the state has to come up with billions of dollars to give
back to the other entities.”

If the revenue and spending are imbalanced, as is the case now,
there will have to be more spending cuts for sub-state agencies
and/or new sources of the revenue.

Hinged upon the problem of decreasing state revenue is the
resulting lay-off of employees in the government sector.

Hurd also notes in the article that sub-state agencies and units
have already laid off about 45,000 jobs from 2003 to 2005, and
there is little chance that any of these jobs will resurface in
2006.

The declining budget would hurt Sacramento the most because of
the large number of government jobs there, Thornberg said.

They are already starting to feel the effects of the budget cut.
But the state is not the only one running a deficit ““ the
federal government and American households are also spending more
than they have before.

The rising consumer credit debt will also slow down the state
economy with the consequential increase of interest rates, Hurd
said.

Despite the state budget deficit and rising interest rates, the
California state economy will have mediocre, but solid growth, Hurd
added.

This growth is demonstrated by the labor market’s 0.8
percent growth in payroll and a 0.7 percent decline in unemployment
rates. Both of these are positive signs for the upcoming year.

Although this growth may seem small, it’s still a positive
sign for the upcoming year.

Unfortunately, these figures may not translate optimistically
for the Bay Area. Hurd speculates that the decline in unemployment
rates in that region is unfortunately due to more
“discouraged workers,” or workers who have given up
looking for a job.

Thornberg agrees, “The San Jose area is still losing jobs,
and now San Francisco is slowly regaining jobs.” 

Positive signs of steady growth, however, can be seen in the
construction and real estate sector. “The long building
shortage will keep demand fairly strong,” writes Hurd in his
June forecast.

Throughout the past few years, this sector has been strong
because Californian demographics push for the creation of new homes
and many more housing permits, Hurd said.

The rocketing prices of homes will slow down the sales of
existing homes, but not cause the market to collapse.

The report, “The California Economy in 2004 to
2006,” also cites other positive signs of a better state
economy as higher incomes, better job balance and good foreign
trade.

This foreign trade, specifically from Asian economies, actually
benefits only and mostly Los Angeles and Long Beach, writes
Thornberg. “Additionally Southern California continues to be
a place to move to, both internationally and
domestically.”

These observations, juxtaposed with the budget deficit problem
and loss of jobs in the government sector show that the 2005
California state economy will continue to struggle and begin
growing at a steady pace.