The California economy will continue to weaken until the housing market hits bottom in the middle of next year, according to a new report from the UCLA Anderson Forecast.
“The continuing plunge in housing prices and skyrocketing foreclosures, a slowing of imports through California’s major ports, and continued mortgage finance-related troubles for the financial industry are taking their toll,” said economist Jerry Nickelsburg. That weakness has “finally overwhelmed other sectors of the economy,” he added.
California’s jobless rate surged to 7.7% in August — surpassing the cyclical peak in the recession that followed the Sept. 11, 2001, terrorist attacks and the dot-com bust by a full percentage point — from 5.5% a year ago, according to the Bureau of Labor Statistics. The national unemployment rate was 6.1% in August.
“Unemployment is going to continue to be ugly,” Nickelsburg said. “The stalled California economy is simply not producing the jobs required for the new entrants to the labor force … Our near-term quarterly forecast has things getting worse before better.”
California payrolls shrank by just 72,700 jobs in the past year, but the state’s workforce continued to grow. The number of jobless Californians rose 413,000 to 1.4 million since August 2007.
The biggest job losses have come in construction and finance, two sectors that have been hard hit by the housing crisis, but the state also lost jobs in retailing, manufacturing, and information services. The only sectors that expanded by more than 1% were agriculture, health care, education, and government employment.
That said, the forecast predicts that the worst of the job losses may be behind the state — assuming that recent moves to stabilize the financial system begin to stabilize demand for housing. Nickelsburg predicted that the unemployment rate will stabilize just above 7% and stay there through 2009 before declining “only moderately” in 2010.
California home prices fell 6.9% in the second quarter, according to the Office of Federal Housing Enterprise Oversight.
Nickelsburg expects continued home price declines this year, but he predicted that home values will reach equilibrium after falling another 2% to 5% before the end of this year. He expects gradual improvement thereafter, not a return to the sharp home price gains that preceded the housing collapse.
“Basically, the California economy will muddle along the balance of this year and next,” the report said. “This slowing in the growth rate portends problems in state government finance until the 2010-2011 fiscal year.”
