UCLA: An ugly economy

Happy Wednesday. The Anderson Forecast expects personal income in the state to fall in the fourth quarter and unemployment to remain in the 7.4 percent range through 2009 (the August rate was 7.7 percent; L.A. County was at 7.9 percent). "The California economy will muddle along the balance of this year and next," writes Anderson Forecast economist Jerry Nickelsburg. He says a lot will depend on when the construction and finance sectors bottom out, but adds that "We can expect doldrums to be the operative word describing the California economy over the next 18 to 24 months." Much of what happens in the state, of course, depends on what happens nationally - and on that front the UCLA folks expect GDP growth to be essentially zero in both the fourth quarter and the first quarter of 2009. "What we are describing," writes senior economist David Shulman, "is an economy operating at its 'stall speed' where any modest shock can trigger a full-blown recession, just as when an airplane’s velocity slows to such an extent where it can no longer fly." Here's a nugget from the California report:

At the time of our June forecast we had been talking about how the diversified economies of the Bay Area and Los Angeles had been keeping California employment growing in spite of the Golden State being harder hit than elsewhere in the U.S. by the housing downturn. Over the last three months the continued slide in the housing market and somewhat surprising continued contraction in mortgage finance employment have finally overwhelmed other sectors of the economy. July’s employment report was, to put it bluntly, ugly. We think temporarily ugly, but ugly none the less. Government employment growth ground to zero as expected, but services did as well. So although there are no clear signs of a freefall, in fact just the opposite, the recent employment data suggests tough times in California labor markets for the balance of the year.

I’m assuming that most of the report was prepared before last week’s near-meltdown on Wall Street. How the government’s rescue package gets resolved will certainly factor into the economic outlook, although to what degree would seem to be just guesswork. It must be tough being an economist these days.