California’s economy is continuing to outperform the nation as a whole, but thanks to anticipated economic slowing in the United States and globally, the state will likely start seeing some negative impacts by the end of next year, according to a UCLA Anderson Forecast report released Wednesday.
In his report on the state, UCLA Anderson Forecast Director Jerry Nickelsburg wrote that California’s unemployment rates remain “extremely low,” particularly in the largest job markets. And while the U.S. gross domestic product has slowed, California’s has been growing at a 4% annual rate.
“Again, the numbers are perhaps a little high and will be revised, but they still raise the question as to why the disconnect?” Nickelsburg wrote. “The answer is found in the growth areas in the state. California is outperforming the U.S. for the same reason it has over the last decade: productivity gains through the employment of labor augmenting technology.
“Nevertheless, with recession in the air and a slowing U.S. and world economy, at some point in the future something will have to give. We look to the latter part of next year for that to happen, about the time the U.S. growth rates dip below 1%.”
Nickelsburg noted that unemployment rates in the Los Angeles area are not as low as other parts of the state, but California as a whole is enjoying economic prosperity.
But he wrote that the slowing U.S. economy and anticipated weakness in the housing market will take root in late 2020.
“As a consequence, we expect California’s average unemployment rate to rise to an average of 5.1% in the fourth quarter of 2020,” he wrote. “For the entire years 2020 and 2021 we expect average unemployment rates of 4.6%.”
On the national front, UCLA Anderson Forecast senior economist David Shulman’s report does not envision a recession over the next two years, but he anticipates that “economic growth will stall in the second half of 2020 as the effects of the 2017 tax cuts wane and as trade tensions exact their toll on corporate investment.”
Shulman predicted a slowing in GDP growth this year and next.
“Indeed in the second half of 2020 growth is expected to decline to 0.4% — not quite a recession — but pretty close,” he wrote.
Shulman predicted a slight rebound in economic growth in 2021. He said the real risk to the economy “is coming from the (Trump) Administration’s high and erratic tariff policies and its potential impact on exports and business investment.”
“As long as consumption remains firm we believe that the U.S. economy will avoid a recession next year, but nevertheless, it will be `The Year of Living Dangerously,”’ he wrote.