Anderson Forecast: Economy ‘On the Mend’ as GDP Grows, Payroll Employment Increases

In its first quarterly report of 2011, the UCLA Anderson Forecast is cautiously sanguine about the national economy, as real gross domestic product continues to grow at a steady pace and employment continues to increase. 

However, the recovery is still slow, and the recession cut jobs so deeply that growth will be insufficient to surpass the employment peak reached in early 2008 by the end of 2013. 

The California forecast is slightly weaker in the near term than it was in December 2010, with unemployment predicted to be substantially higher than the U.S. rate at the end of 2013. 

The national forecast 

In a report titled “On the Mend,” senior economist David Shulman writes, “The U.S. economy is getting better. Slowly, in fits and starts, real GDP is growing and employment is increasing.” 

The forecast predicts real GDP growth of 3.8 percent in the current quarter, with 3.0 percent growth expected for the duration of the forecast’s 2013 horizon. The forecast also sees payroll employment increases of 1.9 million in 2011, 2.6 million in 2012 and 3.0 million in 2013. But, as mentioned, these increases in employment will not bring the U.S. back to the employment peak of the first quarter of 2008. 

The economy, Shulman says, is being propelled by strong increases in corporate spending and software, and the impetus for spending is coming from extraordinarily low interest rates, a rapidly recovering stock market and investment incentives coming out of Washington. 

“Independent of policy,” Shulman writes, “investment is being spurred by technological advances in wireless and cloud computing, along with new natural gas drilling and technologies that are reshaping the nation’s energy map. As a result, the real business investment share of GDP will increase from 12.8 percent in 2010 to 15.4 percent in 2013.” 

Exports and the automobile sector are also spurring the recovery, the latter a rebounding as pent-up demand spurs new car sales. State and local government and housing lag behind other growing sectors — homes, unlike cars, wear out slowly and don’t need replacing as often. The forecast predicts only modest growth in housing starts this year, but an improving employment sector will push housing starts to 1.5 million in 2013, up from 586,000 in 2010. 

Shulman perceives a “whiff of inflation in the air,” as commodity prices rise, and he notes that interest rates are also expected to rise — both factors that could slow the national economic recovery. 

“Because inflation will be higher than what the Fed now thinks, the Fed will end its zero-interest-rate policy in early 2012, and 10-year Treasury bond yields will soon normalize at rates above 4 percent,” he writes. 

The California forecast 

The forecast for California, by senior economist Jerry Nickelsburg, reflects the mixed signals emanating from the state’s economic data. 

Job creation in the state remains sluggish, and California’s unemployment rate is predicted to be substantially higher than the national rate at the end of 2013. Growth will be slower than was expected in the Anderson Forecast’s December 2010 report, and slow growth in the near term means the unemployment rate in California will remain at 10.5 percent next year, Nickelsburg says. 

The latter part of the forecast — through 2013 — sees the health care, professional and business services, exports, and technology-related manufacturing sectors generating more robust growth. 

“Job creation, though more rapid in late 2011 and in 2012 and 2013, will not be fast enough to push the unemployment rate below double digits until the start of 2013,” Nickelsburg writes. 

The drivers of the California’s recovery will be education, health care, exports and technology, as well as residential construction. Employment is expected to grow 1.1 percent in 2011, with the bulk of this growth occurring in the latter part of the year. The state’s end-of-year growth will be slightly faster than the nation’s, as increases in U.S. consumption levels will be magnified in California’s logistics industry and increases in exports to the growing economies of Asia will disproportionately affect the state.  

Real personal income growth is forecast to be 1.3 percent in 2011, 3.7 percent in 2012 and 4.1 percent in 2013. 

The unemployment rate has been stuck between 12 percent and 13 percent throughout this year, and employment growth in 2011 and 2012 will only push unemployment down marginally. The unemployment rate is not expected to reach 9.7 percent until the first quarter of 2013 and is predicted to remain elevated at 8.9 percent through 2013. 

The UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation and was unique in predicting both the seriousness of the early-1990s downturn in California and the strength of the state’s rebound since 1993. More recently, the Anderson Forecast was credited as the first major U.S. economic forecasting group to declare the recession of 2001.

The UCLA Anderson School of Management, established in 1935, is regarded among the leading business schools in the world. UCLA Anderson faculty are ranked No. 1 in “intellectual capital” by Business Week and are renowned for their teaching excellence and research in advancing management thinking. Each year, UCLA Anderson provides management education to more than 1,600 students enrolled in M.B.A., fully-employed M.B.A., executive M.B.A. and doctoral programs, and to more than 2,000 professional managers through executive education programs. Combining highly selective admissions, varied and innovative learning programs, and a worldwide network of 37,000 alumni, UCLA Anderson develops global leaders. 

– By Hilary Rehder 

*Source: University of California

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