California’s Economy Stays Strong but Could Weaken as National Growth Slows


California’s economy continues to grow but could weaken along with slower national growth, according to a new forecast from the University of California-Los Angeles (UCLA) Anderson School.

Although there is uncertainty about what will happen over the next 12 months, UCLA forecasters are not predicting a recession next year. However, according to the September 21 report, the US economy is likely to see slower growth and persistently high inflation.

“The UCLA Anderson Forecast does not currently expect a recession, but the likelihood of a recession in the next 12 months has increased,” Leo Feler, the forecast’s senior economist, wrote in the report.

Feler forecasts a less than 50 percent chance that the country will enter a recession next year. Numerous other economists, including those of the Conference Board, Fannie Mae and First Trust, are all flatly forecasting a recession – a reflection of differing views on the economy during this inflationary era.

The Federal Reserve is also less likely to do a “soft landing” when the economy slows, Feler said. A soft landing would slow the economy, but not crash it.

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The Federal Reserve continued its aggressive stance on fighting inflation, raising interest rates another 0.75 percentage point to 3.25 percent on September 21st. This is the third straight hike – the Fed raised rates by the same 75 basis points in June and July – and some forecasters said the agency will do so again before the end of the year.

National job growth, relatively resilient consumer spending, fewer supply chain kinks, and significant government spending on defense and renewable energy are some factors making a recession less likely, Feler said.

“As bad as the economy looks in the US, it’s worse globally,” Feler wrote. “Faced with rising US interest rates and global instability, investors have pumped money into the US, which has helped the dollar appreciate against other currencies. This appreciation makes US exports more expensive worldwide.”

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In California, UCLA forecasters expect positive earnings.

On average, the state’s households would be wealthier than those of other states, they said. Employment is rising, although the sectors where jobs have risen have changed since the pandemic.

“Overall, the data reflects broad-based sentiment, with leisure and hospitality, healthcare and social services, technology and construction all posting solid gains,” forecast director Jerry Nickelsburg wrote in his economic outlook for the state. “Increases in defense spending and continued demand for technology are likely to keep the economy growing.”

Unemployment from July 1 to September 30 is expected to be 4 percent. The average values ​​for 2022, 2023 and 2024 are expected to be 4.3 percent, 4.4 percent and 4.8 percent, respectively.

Also, according to the report, Californians are making less money this year due to inflation.

Real personal income, which is the amount of money a person makes after adjusting for inflation, is expected to fall 5.5 percent in California this year but recover slightly by 0.3 percent in 2023. Real personal income is expected to grow by 2.4 percent by 2024.

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Nickelsburg forecasts a slowdown in job growth. A projected increase of 4.9 percent this year is expected to decline to 1.5 percent next year and 0.7 percent in 2024. The forecast projects nonfarm payrolls growth of 5.3 percent this year, falling to 1.7 percent next year and 0.8 percent in 2024.

Home prices have also fallen in the state, with the median price of a single-family home falling 7 percent from its peak. However, high housing costs have contributed to migration to California.

“California’s population loss is more related to housing costs than economic malaise,” Nickelsburg wrote.

However, the number of people leaving the Golden State could slow as home prices rise in other states, he said.

Jill McLaughlin

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