LOS ANGELES — The federal deficit is likely to be higher no matter who wins the presidential election, according to a UCLA Anderson Forecast economist.
"With both Clinton and Trump calling for more spending, and with tax increases difficult to pass, the path of the federal deficit will be decidedly higher, thereby reversing the trend of lower deficits in recent years," said Senior Economist David Shulman.
Donald Trump and Hillary Clinton both say the country needs to increase spending on infrastructure, according to the forecast.
Trump's proposals would cause "the federal deficit to explode if enacted," while Clinton's proposals, would modestly increase the deficit, but might not result in hoped for economic growth, Shulman said.
Shulman evaluated the potential economic impacts of either a Clinton or Trump win in his national forecast, but he assumed that Clinton will be elected president with at least one house of Congress remaining Republican.
"Her plan would modestly increase the deficit, but it is silent on its potential to make economic growth even slower than it is now," Shulman said in his forecast. "Of course, whether any or all of these proposals get through Congress remains an open question."
The real "wild card" both the country and California, Shulman said, is world trade.
"If there is a risk in our forecast you can start here," he said.
"The dollar has been strong, foreign economies generally weak and there has been an obvious increase in protectionist sentiment worldwide," Shulman said. "As a result, global trade has not been a source of growth in recent years."
The forecast assumes a modest increase in export volumes over the next few years after two years of essentially zero growth.
Senior Economist Jerry Nickelsburg warned of a possible trade war, because both candidates have taken a critical view of international trade in this era of globalization.
"Trump's views, however, are more likely to initiative a trade war with those Asian countries, particularly China, running large current account trade deficits with the U.S.," Nickelsburg said.
Trade is a major economic driver for California, particularly trade with Asian countries.
Los Angeles County has the largest economy in the U.S. and if it were a country, it would have the world's 22nd largest economy, said Stephen Cheung, president of World Trade Center, Los Angeles. Los Angeles is also the No. 1 customs district in the country, he said.
"Trade is our lifeline to the rest of the world and our economy is based on it," Cheung said.
Aside from concerns over trade, the forecast for California was largely positive.
"California is nearly at full employment and that is good news," Nickelsburg said. "We expect the California economy to continue to grow and to continue to create jobs through our forecast horizon [of two and a half years.]"
Nationally, economic growth will be rooted in continued gains in the consumer and housing sectors, along with a rebound in capital spending, Shulman said.
Real consumption expenditures will not approach the 3.2% increase of 2015, but Shulman said there will be solid gains above 2% during the next two and a half years. He attributed the decline to the automobile market hitting its peak with light vehicle sales running at about a 17.5-million-unit rate.
Rising wages, low interest rates and higher rents underpin housing demand, Shulman said. Housing starts are expected to increase to 1.19 million units this year and to 1.38 million units and 1.41 units in 2017 and 2018, respectively, up from 1.11 million units in 2015.
In California, total employment growth for the state will be 2%, and the forecast for 2017 and 2018 is 1.7% and 1.1%, respectively.
California and the U.S. are both considered to be at full employment, which doesn't leave a lot of room for economic growth if in migration slows, said Edward Leamer, director of the UCLA Anderson Forecast.
Full employment could also impact the ability to ramp up infrastructure projects in California, Nickelsburg said.
Growth in economic sectors, new or old, have all resulted from the availability of new employees through migration or from workers switching over from a dying industry, he said.
