California/National Economic Forecasts for 2011: Optimist #2

It  is tough to call this one “optimistic” because UCLA forecasters don’t see much good coming before 2012, and they are very cautious in their language.

“December 7, 2010 – In its fourth quarterly report of 2010, the UCLA Anderson Forecast calls for “modest growth and distressingly high unemployment” for most of 2011, with an acceleration of growth late next year that will gradually lower the unemployment rate. The California forecast reads similarly, with slow growth expected until the end of next year. The Los Angeles County projections appear slightly more optimistic as 2010’s high unemployment rates begin to gradually descend early next year. All three forecasts are brighter for 2012 as the economies grow more rapidly and unemployment rates continue to drop. ”

Not the stuff of which dreams are made, but not the decidly scary forecasts I have on tap. But if you look inside, the words between the lines are scary. This is the national scenario:

“In a report titled, “Risky Business,” UCLA Anderson Forecast Senior Economist David Shulman lays out the Federal Reserve’s plan to “expand its balance sheet” by $600 billion over the next eight months through the purchase of intermediate-term bonds in an effort to lower long-term interest rates and thereby stimulate consumption and investment. Shulman believes that this policy will be “modestly helpful,” noting that recent economic data have been encouraging. As a result, the Forecast has revised upward both its real Gross Domestic Product (GDP) and inflation forecasts. But, there is a “but.” “Unfortunately, even with the jobs gains averaging 150,000 per a month in 2011 and 200,000 a month in 2012,” Shulman writes, “unemployment will remain above 9% through the third quarter of 2012.”  ”

In other words, at best, the Fed’s shenanigans, which may not even be legal, will be “modestly helpful” and unemployment will remain sky high for a year or more.  That’s if the optimistic goals are met. Not so good. Especially if $5 gas is around the corner.

Then there is this gem:

“In a companion piece to the national report, UCLA Anderson Forecast Director Edward Leamer delves deeply into national employment issues in an essay titled, “What’s the Matter with the U.S. Job Market?” In it, Leamer argues that the national job markets certain structural problems that have created a mismatch between what employers are looking for and what unemployed workers have to offer. These structural issues include the loss of manufacturing jobs to a variety of “competitors” both technological (robots, microprocessors) and human (foreign workers and recent immigrants willing to work for less) and the housing crisis that continues to jeopardize the construction sector. Unlike in previous recessions, Leamer opines, workers today are not easily returning to the jobs they lost and as a result the economy must find a way to create jobs for millions of workers whose skills lend themselves more suitably to manufacturing and construction. ”

Workers with fixed or outdated skills are competing with illegal aliens who will take less money. What could possibly go wrong? A “housing crisis” that has not gone away and jeopardizes the housing sector. This is optimism?

As for California and Los Angeles:

“California’s forecast, authored by Senior Economist Jerry Nickelsburg and titled “Laying the Groundwork for California’s Economic Recovery,” continues themes that began in September – almost imperceptibly slow growth until the end of next year. “with only the first indication of changes in consumer and business expectations revealing themselves in the contemporaneous data, and in the absence of an external driver to induce faster growth, this is the most likely scenario for this phase of the recovery,” Nickelsburg writes. Stated bluntly, California must re-employ 1.3 million workers just to get back to pre-recession levels and must also find jobs for all the new entrants to the work force in the past two and a half years.

The forecast’s expectations for 2011 are growth in employment of 1.6%, with the majority of growth coming in the latter part of the year. By the end of 2011, employment in California will be growing faster than the U.S. Unemployment growth is expected to speed up in 2012 as the recovery takes hold and real personal income growth is forecast to be 1.6% in 2011 and 3.6% in 2012.

In a report titled “Waiting to Send Out the Ships,” Economist Julia Thornton Snider writes, “the near-term forecast for Los Angeles is of continued weakness in the fourth quarter, followed by a gradual reinvigoration of the recovery. Unemployment will stay high through the end of this year before gradually descending in early 2011.” Snider writes that real personal income and real taxable sales have sputtered along with the rest of the economy, but should also improve next year, hitting 1.9 and 1.4 percent growth rates, respectively. For 2012, an acceleration of the recovery is forecasted as job gains spread from sector to sector and nonresidential construction revives. ”

The prescription for health seems almost unattainable: finding jobs for 1.3 million people who have lost them and also for millions more entering the work force (and an unknown number of people who shouldn’t be here) This just to get back to where were were before what is now called “The Great Recession.”

Meanwhile, we have driven business out of the state at an unprecedented rate and are busily introducing job killing “green” regulations.

Next up….the pessimists.

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