Sunday, December 30, 2007

No Recession In 2008

No Recession In 2008, Study Says
A UCLA Report Predicts The Nation And State Will Be Saved, Saying Some Of The Economy's Worst Bumps Are Past.

By Peter Y. Hong, LA Times | 6 December 2007

LEFT: The economy hits home; click to enlarge

California and the nation will escape a recession in 2008 despite rising oil prices, sinking housing prices and a turbulent stock market, a UCLA study released today predicts. "Be calm my friends. Be calm," wrote UCLA Anderson Forecast director Edward Leamer in the latest quarterly report from the group. A recession— negative economic growth for two consecutive quarters— probably will be averted next year, the forecast says, noting that the economy has already taken some of its hardest hits.

Nationwide, unemployment would have to climb to 6% from the current 4.6% to cause a recession, the forecast said. Such an increase would require the loss of 2 million more jobs. Cuts on that scale won't be possible, the Anderson report said, because job growth was weak throughout the current economic expansion.

Job losses in California will be numerous in the construction and financial sectors but total unemployment will peak by the end of next year at a 6.1% rate, the study reported. Meanwhile, real personal income will rise 1% to 2%.

"How can we lose jobs that were never found?" the report said.

  • The loss of 3 million manufacturing jobs early this decade means there is little room to cut more positions.

  • Most of the damage to the economy from the housing slump will be over by the end of next year.

  • The weak dollar will help U.S. exports, aiding manufacturers in Southern California.

  • Consumer spending will drop, but much of the effect will be shouldered by other countries as U.S. imports of their products decline.

The Federal Reserve [met] Tuesday and … cut its benchmark interest rate for a third time to help avoid a recession. That reduction— and more next year— will be needed to ward off a recession, the forecast said.

"Should the Fed fail to ease significantly, we believe our 'no recession' forecast would be at significant risk," the study said.

UCLA economists also predicted that stock prices would rise 10% to 12% next year amid calming credit markets and modest economic growth. In California, the economy will be hit hard by the weak real estate market, falling government revenue, and the Hollywood writers' strike. But like the nation, the Anderson Forecast projected that recession would be averted.

"It gets pretty ugly, but still no recession," the report said. State government will face a budget shortfall of $8 billion over the next two fiscal years because of weaker than previously expected income, sales and corporate tax collections, the study said. That shortfall would be greater than the state's spending on the University of California and California State University systems combined, the report said.

If the Writers Guild of America strike lasts as long as the 153-day action of 1988, it would lower personal income growth in Los Angeles by 0.25%, the forecast said. So the strike's effect on the overall economy will be slight but "can be very substantial and difficult for the people involved," the study said.

Ryan Ratcliff, a coauthor of the California portion of the forecast, said areas such as white-collar businesses, education, healthcare and tourism remain healthy, softening the blow of the real estate downturn. "It's not so much that there is one [paticular] sector doing so well it is offsetting real estate doing so badly," Ratcliff said, "we are seeing slow growth everywhere outside of real estate."



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