UCLA sees rough 2009

The Anderson Forecast sees the beginnings of a recovery in the fourth quarter of 2009 - a little less than a year away. UCLA economist Jerry Nickelsburg says a lot will depend on several unknowables: when the bottom is finally reached in construction and finance, how great the drag on state and local employment will be, and when consumers return to the malls. There are several potential thorns along the way, among them the possibility of a sales tax increase (not the ideal way to stimulate spending). State unemployment will be ugly - Nickelsburg sees it reaching 8.7 percent next year and staying there in 2010. That's an indication of how incremental the turnaround is likely to be over the next couple of years (October unemployment stood at 8.2 percent).

The state is going to share the national recession with negative economic growth through the middle of next year and high unemployment into 2010. The U.S. recession will be unevenly felt across California. The Inland Empire, Orange County, the East Bay and the Central Valley will be hit the hardest as the recession provides a double whammy with a generalized downturn in demand and a postponement of a recovery in residential construction. The coastal areas will not be immune as a U.S. downturn means that imports flowing through California’s ports will continue to decline, and recessions in Europe and Japan mean that export demand for California manufacturing will be muted. In short, the forecast for the next three quarters is one of contraction in economic activity followed by the beginning of a slow recovery.

As for the national picture, the UCLA economists expect real GDP to decline by 4.1 percent in the fourth quarter (roughly in line with other forecasts) and then drop by another 3.4 percent in the first quarter of 2009 and 0.8 percent in the second quarter. That would mean four straight quarters of negative growth. Ed Leamer, director of the Forecast, offers an honest summation:

Forecasting depends on some reasonable similarity between current situations and episodes in the historical data. But there is SOOO MUCH data over the last several months that we haven’t seen before. These abnormalities limit the power of statistical forecasting, forcing us to rely more on hunches.