- California will experience a
full year of sub-par growth in 2024, followed by two years of
growth rates higher than the U.S., led by technology and
aerospace
- Forecast economists expect 2025 and 2026 to be banner years for
U.S. GDP growth, firmly in the high twos, driven in part by growth
in residential investment
LOS
ANGELES, Oct. 2, 2024 /PRNewswire/ -- Because the
nation's growth rate is not expected to accelerate until after the
November 2024 presidential election,
the UCLA Anderson Forecast says that California will ultimately experience a full
year of sub-par growth in 2024. This slower growth is the result of
specific sectoral weaknesses in California, evidenced by its high unemployment
rate. In 2023, California's GDP
grew at a 3.7% compound annual rate, which was faster than the
nation's and all but three states: Washington, Florida and Texas. However, the growth rate in the second
quarter of 2024 was 2.8% on an annual basis, 0.2 percentage points
less than the U.S. growth rate. The next two years (2025 and 2026)
will be characterized by a more typical higher-than-U.S. economic
growth, led by technology and aerospace.
The U.S. economy faces some headwinds going into the fourth
quarter of 2024 because of potential labor actions in systemically
important industries and uncertainty regarding the presidential
election and its aftermath. Conditional on whether these factors
are resolved smoothly by year's end, the UCLA Anderson Forecast
expects the national economy to continue its recent robust pace of
GDP growth. This future growth will be driven by a rise in
residential investment as the housing market is unlocked from its
current state, wherein many homeowners have delayed moving to avoid
giving up their previously acquired low, fixed-rate mortgages.
The California forecast in
detail
The employment picture in California varies, depending on which survey
one consults. The household survey metric counts the number of
people employed and the enterprise survey metric counts the number
of payroll jobs.
The household survey reported that the number of people employed
in August 2024 was 2.1% below the
number employed at the pre-pandemic peak. The decline in employment
over and above the decline in the labor force led to an increase in
the unemployment rate to 5.3% in August. But over the same period,
California's non-farm payroll jobs
increased, and they now exceed the pre-pandemic level by 418,400
jobs. The difference between the two metrics can be partly
explained by the difference in the definition of employment in the
two surveys. The household survey is a measure based on the
domicile of the worker. If a former San
Francisco office worker were now working remotely in
Phoenix, the worker would not be
counted in the labor force or employment numbers for California in the household survey. This would
represent a decrease in the state's aggregate labor force. However,
if the job were still being performed virtually at an enterprise in
San Francisco, the worker would
remain in the enterprise survey as employed in San Francisco, even though living in
Phoenix. This, at least in part,
explains the large decline in San
Francisco's labor force.
Notably, many of the new payroll jobs are in sectors different
from those where job loss was the most acute. In the logistics,
technology, construction, education, government, and health care
and social services sectors, job creation makes up the bulk of the
increase. The sectors with the largest decreases in employment
since the pre-pandemic peak are manufacturing, information,
temporary services and finance.
The pace of employment growth in California is, of course, geographically
variable. Over the first eight months of 2024, slower-than-U.S. job
growth has been experienced by Silicon Valley, San Francisco and San Diego. In addition, the San Joaquin Valley, hit by a second year of
unusual winter weather, has lost payroll and farm jobs this year.
Despite anemic job growth in August, other regions in California have seen employment growing at
rates substantially higher than the U.S.
This employment picture leads to a relatively weak California forecast for 2024 and a slow return
to the national unemployment rate. Much of the weakness should
resolve by the end of 2025 and ought to lead to higher growth rates
through the rest of the three-year forecast, though labor force
constraints could be exacerbated by more restrictive immigration
policies.
The housing market in California may well be on the cusp of a trend
toward normalization. Lower mortgage rates and the passage of time
should begin to free up the existing single-family home market. The
latest data, from August 2024,
reflect a market that is still at depression levels. However, those
data are derived from home sales that have been under contract for
one or more months. It is likely that November and December 2024 home sales will reflect the new
lower mortgage rates.
The California economy is
expected to grow faster than the national economy in 2025 and 2026,
but not by much. The risks to the forecast are political and
geopolitical, and, on the downside, the interest rates could
potentially still disrupt the current expansion and, on the upside,
international immigration and accelerated onshoring of technical
manufacturing could increase growth.
The national forecast in detail
The COVID-19 pandemic, along with the sharp shifts in monetary
policy that accompanied it, created imbalances in the national
economy that persist today. These lingering imbalances are evident
in the housing and automobile markets, as well as on the balance
sheets of households and governments, and they signal where the
economy will head over the next couple of years as they gradually
unwind.
Preliminary data suggest that the third quarter of 2024 was yet
another period of stellar GDP growth, which the Forecast
conservatively expects to come in at 2.5% on a seasonally adjusted
annual rate (SAAR). However, the Forecast anticipates a slowdown in
the fourth quarter because of a convergence of disparate events,
including the strike at Boeing, which is already forcing the
company to cut back on business expenses. If the strike persists
throughout the fourth quarter, it may reduce growth in the
industrial sector by a couple of tenths of a percent.
Another strike by East Coast dockworkers is slated to commence
on October 1, which could take a
substantial toll on the economy, costing upward of $5 billion per day. As the report was being
finalized, Hurricane Helene was on an imminent path toward the Gulf
Coast of Florida. The extent of
its economic damage to Florida and
the Carolinas and the impact on the U.S. economy is still
uncertain. Last but not least, the uncertainty surrounding the U.S.
presidential election leads to more precautionary behavior by firms
in their hiring and investment decisions as they adopt a "wait and
see" approach. Given that the election is currently projected as a
toss-up, with starkly different policy prescriptions depending on
the outcome, the Forecast maintains the assumption of continued
gridlock in Congress throughout the forecast period. Under this
assumption, however, after a tepid fourth quarter of 1.2% SAAR GDP
growth, the Forecast expects 2025 and 2026 to be banner years for
GDP growth, firmly in the high twos, driven in part by growth in
residential investment.
About UCLA Anderson Forecast
UCLA Anderson Forecast is
one of the most widely watched and often-cited economic outlooks
for California and the nation and
was unique in predicting both the seriousness of the early-1990s
downturn in California and the
strength of the state's rebound since 1993. The Forecast was
credited as the first major U.S. economic forecasting group to call
the recession of 2001 and, in March
2020, it was the first to declare that the recession caused
by the COVID-19 pandemic had already begun.
uclaforecast.com
About UCLA Anderson School of Management
UCLA Anderson
School of Management is a world-renowned learning and research
institution. As part of the nation's No. 1 public university, its
mission is to advance management thinking and prepare
transformative leaders to make positive business and societal
impact. Located in Los Angeles,
one of the nation's most diverse and dynamic cities and the
creative capital of the world, UCLA Anderson places more MBAs on
the West Coast than any other business school, and its graduates
also bring an innovative and inclusive West Coast sensibility to
leading organizations across the U.S. and the world. Each year,
UCLA Anderson's MBA, Fully Employed MBA, Executive MBA, UCLA-NUS
Executive MBA, Master of Financial Engineering, Master of Science
in Business Analytics and doctoral programs educate more than 2,000
students, while the Executive Education program trains an
additional 1,800 professionals. This next generation of
transformative leaders will help shape the future of both business
and society.
anderson.ucla.edu
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