The positive signs of early 2011 that led the UCLA Anderson Forecast’s economists to believe the economy might recover faster than predicted have failed to take hold.
As a result, the economists’ outlook for the nation is “far worse” than it was just three months ago, with the current forecast calling for average gross domestic product growth of just 0.9% through the first quarter of 2012.
On a brighter note, the UCLA economists also said that the country is not currently in a recession, nor is a recession forecast through 2013.
However, the lack of a recession sounds like just barely good news with the slight growth predicted by forecasters.
The California forecast is for slow growth until year-end 2012, because the state’s economy, like the national economy, is in “stall mode,” the report declared.
“We are lowering our forecast and lowering our expectations in regard to state and local government revenue, because they are based on income and consumption,” said Jerry Nickelsburg, a senior economist with the UCLA Forecast. “Consumers aren’t spending as much and income is not growing as rapidly. We expect that to impact the growth rate, which governs revenue.”
On the other hand, property taxes, which make up a big part of local revenue, are pretty stable in California, he said.
Forecasters predicted no growth in employment in the state for 2011, with slight increases of 0.7% in 2012 and 2.1% in 2013. Unemployment is expected to hover around 12% in 2012 and not reach single digits until 2014.
California’s recovery also has bifurcated, with better news for the state’s coastal regions with their higher concentration of high-tech, innovation, and knowledge-based jobs, while the inland areas are more dependent on construction, an industry that has been hammered by the lack of new building.
Cutbacks in local and state government jobs have also hit the Sacramento region harder than other areas of the state, according to the forecast.
Inland California is not expected to recover until 2017, but coastal California is expected to recover faster than the U.S. economy.
Even though California has a 2006 infrastructure bond issue already approved, Nickelsburg said, he does not expect the state to pull the trigger on it until 2012 or 2013, because of interest rates dictated by the state’s low ratings. He added that a discussion of the state’s bonds — and when they might be issued — was not included in the official forecast.
“We have had changes in the state government [budget process] and if we get economic growth, the borrowing costs might decline,” Nickelsburg said. “We are not forecasting they will, but if they do, we might see some infrastructure starts.”
California’s rating can also affect the ability of local governments to issue bonds and the interest rates they receive depending on what their own ratings are. As a result, Nickelsburg is not expecting local governments to issue much in 2012 either.
As for the impact of President Obama’s infrastructure plan, the UCLA economists did forecast an uptick in infrastructure spending from the package of bills.
But it takes time for infrastructure programs to result in new jobs for Americans, Nickelsburg noted.
“If it goes through the way that President Obama structured it, we will not see that for a couple of years,” he said. “There is a subsidy for teachers in that plan. If that were to go through, that would be a revenue augmentation for that segment of local government. But we don’t know if it is going through.”
