California’s Recovery Years Away, Says UCLA Anderson Forecast

Just six months ago, the UCLA Anderson Forecast issued a bleak prognosis for the national economy. The economic group’s first-ever interim revision a few weeks later, declared that the U.S. had entered a recession for the first time since 2008. Then in June, the forecast team wrote that the nation’s economy was in a “depression-like” crisis and would not return to its 2019 strength anytime soon.

Now, the Anderson Forecast cautiously offers an economic outlook that includes a “better than expected outcome,” nationally. In its September 2020 forecast for California, the UCLA Anderson Forecast projects that the state’s economic outlook will improve substantially in the third quarter of this year, but that a full recovery will not occur before the end of 2022.

The major patterns of the California forecast are relatively similar to those in the June report. One key assumption is that pandemic-induced shutdowns will dissipate in 2021. If this assumption is too optimistic, then so is the forecast, note the economists.

California’s economy is expected to largely track that of the U.S., with some areas displaying more weakness and others displaying more strength. For example, greatly reduced international arrivals at major airports in the state reflect the pain felt more broadly in the leisure and hospitality industry.

Home sales dropped precipitously in the first quarter, only to bounce right back, which supports the projection of strong growth in residential building permits. Residential building permits are predicted to be back almost to their 2020 first-quarter level by year’s end, at 117,000 per year, and will reach approximately 130,000 units by the end of 2022.

The outlook has California payroll employment reaching 16 million by the end of 2020, still far below the roughly 17.5 million jobs as of Q1 2020. The unemployment rate is projected to fall below 10% by year’s end, but still remaining close to 6% at the close of 2022, compared to just under 5% for the U.S. as a whole.

Forecast director Jerry Nickelsburg writes, “Our forecast assumes either widespread availability and usage of an effective vaccine in early 2021 or that the pandemic’s impact on economic activity abates and is relatively mild in 2021 and 2022. It also assumes another, more limited round of fiscal stimulus before the end of the year. None of these assumptions is assured, and if they do not come to pass, our forecast … is too optimistic.”

For comments, questions or concerns, please contact Dennis Kaiser