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Forecast: No second recession expected

Posted: September 21, 2011 1:55 a.m.
Updated: September 21, 2011 1:55 a.m.

The UCLA Anderson Forecast reported Tuesday that the nation’s economy is “far worse” than it was just three months ago.

The forecasters revisited the concept of “stall speed,” in which an economy grows so slowly that any modest shock can trigger a full-blown recession.

Economists, however, remain firm in their analysis that there is not a second recession forecasted through 2013 in the United States.

Senior UCLA Anderson economist David Shulman said the three sectors that would normally put the economy into a recession — housing, consumer durables and inventories — are already depressed.

“Even if housing starts drop to new lows, this sector of the economy has shriveled so much that it would only have a modest impact on economic activity,” Shulman said.

If the country were to enter a new recession, it would have to come from a collapse in exports, an overall decline in consumer spending and a decline in business investments, he said. While the economists note all the scenarios are plausible, they are not forecasting that will occur.

As for California, senior economist Jerry Nickelsburg sees a split recovery in which the coastal areas of the state are seeing a recovery in exports and innovation, while the inland areas continue to be affected by a glut of housing and reduction in government spending.

Now that the U.S. economy has stalled, the differences in recovery between coastal California and inland California has begun to widen, Nickelsburg said. The specter of long-term economic stagnation in inland California is possible.

“It’s true that California’s economy is struggling,” said Jonas Peterson, president and CEO of the SCV Economic Development Corp.

“However, it’s also true that Santa Clarita Valley is faring better than almost all areas of Southern California,” Peterson said. “Whether you’re looking at unemployment, home values or growth projections, the future simply looks better here.”

The U.S. has experienced stall conditions before, said Edward Leamer, UCLA Anderson Forecast director. But these signs do not always precede a recession, and the slowdown isn’t something people should worry about.

“Do worry about the complete absence of anything to offset the U.S. frugal consumer, and the consequent sluggish growth, which is likely to fall short of even the normal level of 3 percent per year,” he said.

The forecast calls for economic growth to gradually rebound in mid-2012, with the economy advancing at a modest 2.5- to 3-percent rate.

Modest gains in exports, consumption, and equipment and software investment will drive the growth. Employment growth will become more meaningful, with gains averaging about 150,000 jobs per month, and the unemployment rate falling to 8.6 percent by the end of 2013.

Nickelsburg sees slow growth in California until the end of 2012, when the economy will begin to rebound.

“The index of leading economic indicators still points to slow growth rather than another recession,” Peterson said. “But my personal opinion is there will be slow growth statewide, with Santa Clarita Valley outpacing the competition.”

As for employment, Nickelsburg sees virtually no statewide growth in employment, with job growth of only 0.7 percent this year and 2.1 percent in 2012 and 2013. Santa Clarita’s unemployment rate shrank 0.04 percent between July and August.
“Recession or not, the employment situation remains horrible,” Shulman said. Job growth has stalled. By the end of 2013, we will not be back to the unemployment levels of late 2007.”


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