California Apparel News

A recession or no recession? That is the question.

The economists behind the recent UCLA Anderson Forecast sifted through tons of unemployment data, work productivity statistics, interest-rate information and job growth numbers to figure out the future.

The verdict is this: There won’t be a recession happening soon.

“The indicators we look at are not sounding off alarms,” said Edward Leamer, director of the UCLA Anderson Forecast. “Normally there is a recession when there are significant imbalances in the economy, which typically occur in housing and automobiles. Automobiles are looking a bit troubled, but the housing sector doesn’t show any indication of trouble in the next three years.”

However, economists at the UCLA Anderson School of Business, whose economic forecast was released on June 13, are predicting that inflation will continue to rise modestly – leading the Federal Reserve to raise the benchmark interest rate from 1 percent to 1.25 percent at its June 14 meeting and then probably one more time before the end of the year.

UCLA economists see inflation, running at slightly above 2 percent this year, moving up to 2.7 percent by the end of 2019.

With all things equal, the U.S. economy should be chugging along at a modest rate through 2019, which means the gross domestic product will be up a little more than 2 percent in 2017 despite President’s Trump announcement that he would grow the GDP by 3 percent with tax cuts, infrastructure projects and a revamp of the Affordable Care Act. This 3 percent growth rate is a wishful effort to keep pace with the years 1970 to 2007 when the country’s GDP grew at a constant rate of 3 percent a year.

But UCLA Anderson economists predict that the near-term GDP rate will fall below 2 percent in 2019. Congress needs “to figure out how to get us back into the 3 percent corridor, or better yet, make America great again by turning the clock back to 1960 when the growth rate was 4.8 percent,” Leamer said.

The economic recovery is now 32 quarters old, and still shows signs of life. But this expansion has been very mild. Other expansion periods in the 1960s, 1970s and 1990s saw a 25 percent to 30 percent increase in GDP while this most recent expansion of nearly eight years has witnessed only a 15 percent growth in GDP.

The nagging slow-growth pace of the economic recovery is rooted in a loss in manufacturing jobs, a weaker auto sector, a decline in the growth rate of the working population and in total hours worked, as well as a productivity growth rate of only 0.5 percent since the end of the Great Recession in 2009.

“To make America great again, we have to solve three problems: how to increase the rate of growth of the working-age populations; how to increase the rate of growth of hours by making more new jobs fill-time, not part-time; and how to increase the rate of growth of productivity,” Leamer wrote in the report.

Currently, the unemployment rate in the United States is at a low 4.3 percent, but the country’s younger work force is not growing at a rapid rate, the report said. “Demography is a big contributor to our growth slowing down,” Leamer wrote.

When the baby boomers were entering the work force, the working-age population edged up 2 percent per year back in the 1960s, and the offspring of the baby boomers boosted the work force by 1.4 percent a year. New entries are now increasing the work force at a weak 0.25 percent, which shaves off 1.75 percent in GDP growth.

One solution would be to allow young immigrants who are highly educated to work in the United States. But with Trump’s attempts to ban immigration from certain countries, that won’t be happening soon. “How wise is Washington?” Leamer asked. “It is totally dysfunctional.”

California’s economy

California’s unemployment rate is always higher than the national average, sitting at 4.8 percent. But by the end of 2019, the UCLA Anderson Forecast predicts it should dip to 4.5 percent.

California employment is at record levels with 16.7 million payroll jobs. Industries that have gained jobs have been concentrated in construction, education, health care, social services, and leisure and hospitality. Industries that have lost jobs in California have been in manufacturing, retail, temp services and government.

The forecast shows that total employment growth will be 1.4 percent for 2017, 1 percent for 2018, and 0.9 percent for 2019. But continued growth in these areas are threatened by higher interest rates and changes to Obamacare and reduction in international tourism as Trump continues trying to keep out certain foreign visitors from entering the country.

Housing in California will remain expensive because there are not enough homes on the market to meet demand, particularly in urban areas and on the coast. Of the seven least affordable metropolitan areas in the country, six are in California, measured by the ratio of the median home price to the median household income.

Home prices have risen steadily since their drop in 2011 to $369,200. The median price of a home in Los Angeles County hit $581,500 recently, according to Zillow Research.

Apartment rents are also climbing into sky-high territory with the average rent for a one-bedroom apartment in Los Angeles reaching $2,200 a month.

Despite a strong economic recovery, California still has a relatively limited housing supply because of strict regulations, such as the California Environmental Quality Act, which requires developers to show how apartment complexes and new housing developments will affect a neighborhood’s traffic and air quality. Also, community associations are taking a “Not in My Backyard” approach to new construction and protesting these projects.

With that in mind, home building in California is expected to continue to average about 118,000 units a year through 2019.

On the national front, housing demand calls for at least 1.4 million to 1.5 million units to be built every year, but the country will probably see only about 1.27 million units constructed this year, 1.34 million next year and 1.37 million units in 2018.