Employment and payrolls will continue to grow in California over the next three years, but there are economic risks on the horizon, including a rising federal deficit and possible hits to international trade, according to a UCLA Anderson Forecast released Wednesday.
In his report on the California economy, UCLA Anderson Forecast Director Jerry Nickelsburg wrote that the state continued to lead the nation in job growth in 2017, with employment growth accelerating in the final three months of the year.
“Though California made a temporary tax more or less permanent, experienced record high cost of living and has been prone to being characterized — both inside and outside of the state — as one of the most business un-friendly states in the nation, it has done remarkably well,” Nickelsburg wrote. “Among the states with over 5 million in population, California’s GDP has grown consistently and over the period 2013 to 2017 is the second fastest growing state after Washington.”
Nickelsburg predicted employment growth of 2.2 percent in California this year, followed by 1.7 percent and 0.9 percent in the next two years. Payrolls will increase at about the same rate, he said, while personal income growth will continue to rise and homebuilding jump to about 138,000 units per year by 2020.
“The risks to the forecast remain elevated,” Nickelsburg wrote. “The increase in the federal deficit will put pressure on the international trade deficit. That increases the likelihood of trade actions that would depress California’s logistics and export industries.”
On the national front, UCLA Anderson Forecast senior economist David Shulman wrote that the U.S. financial situation is undergoing a “regime change.”
“The economic environment is changing from one of sluggish growth and low inflation to one of accelerating growth and moderate inflation,” he wrote. “Moreover, monetary policy is transitioning from one of accommodation to one of normalization and fiscal policy is moving from a moderate deficit to a high deficit regime with trillion-dollar deficits in the on-deck circle.”
Shulman predicted real GDP growth is on track to continue its 3 percent pace this year, slowing to 2.6 percent next year and down to 1.6 percent in 2020.
“Why the slowdown? Simply put, the economy is already operating at full employment and it is bound by slow labor force growth and sluggish productivity,” he wrote. “Nevertheless, job growth will continue, albeit at a slower clip than in recent years and the unemployment rate will hit 3.5 percent in early 2019.”
He said President Donald Trump’s administration has “put in place an all-out stimulus policy on top of a fully employed economy.”
“As with an automobile, when an economy runs hot, sometimes a few gaskets break,” he wrote.
—City News Service