UCLA economists lowered their near-term job growth expectations for California but maintained their sanguine outlook for the state, even as they projected a significant slowdown in the nation's economic growth.
In their third-quarter report being released today, researchers at the influential UCLA-Anderson Forecast Project predicted that California's nonfarm job growth will increase 3.1% this year and 2.3% in 1999. That is down from UCLA's earlier projections of 3.4% for this year and 2.5% for 1999. For both years, that translates to about 50,000 fewer new jobs than previously expected, almost all of that in the slowing manufacturing sector and services.
If the forecast for 1999 holds up, California's payroll growth rate would be more than double the national rate, now projected at a meager 0.9%.
California's job formation rate this year is running slightly ahead of the national pace, but if California continues to generate a disproportionately greater share of jobs--as it did during much of the 1980s--that is likely to attract even more people to California.
Anticipating that, economist Tom K. Lieser, author of UCLA's California report, warned about the increasing economic constraints from the dearth of new housing construction, which has lagged significantly behind the robust population growth. He said a critical lack of housing already has contributed to a sharp employment growth slowdown in the Silicon Valley area.
Amid a housing crunch developing in Southern California, Lieser sharply boosted his previous outlook for real estate price changes. He now expects home values in Los Angeles County to jump 8% this year and 7.5% in 1999.
UCLA's national forecast, written by Larry J. Kimbell and Rajeev Dhawan, says real economic growth in the United States will be nearly halved next year from the 3.5% growth rate expected for this year. That is essentially unchanged from their previous forecast.
Some economists have suggested the possibility of a national recession next year. But the UCLA analysts cast doubt on those fears.
But with consumer demand and the larger economy clearly slowing, Kimbell and Dhawan said they now expect the Federal Reserve Board to lower interest rates next year. Other economists have said the Fed may act as early as later this month, but those at UCLA think that over the course of 1999, the Fed will cut the benchmark federal funds rate--the interest banks charge one another on overnight loans--by 0.75 of a percentage point.
The nation's unemployment rate, they project, will bump up from 4.6% this year to almost 5.4% in 2000. "That is nowhere near a recession forecast," the report said, "but rather that of a pronounced slowdown that puts us back on our long-term path."