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Modest Job Growth Is Forecast in State, U.S.

March 25, 2004|Don Lee and Jeffrey L. Rabin | Times Staff Writers

Job growth in the nation and California will speed up this spring, but it won't be fast enough to keep up with the growing labor force, according to a new forecast from UCLA.

Economists at the UCLA Anderson Forecast said the hard-hit industrial sector would lead the way in job creation, a factor they said was already slowing the outsourcing of jobs to foreign countries -- at least in manufacturing. But in their quarterly report released today, they predicted that new hiring would be constrained by weaker consumer spending and bulging government budget deficits.

They also shaved their estimates for California taxable sales for this year, which could result in lower-than-expected tax revenues and worsen Gov. Arnold Schwarzenegger's budget predicament.

On the whole, economic and job growth "will do well to remain modest" in the next couple of years, the report said. By 2005, however, California will outperform the nation in new job formation, reflecting the state's larger share of faster-growing industries such as technology and trade, the forecast said.

If UCLA's widely followed projections prove correct, they have significant implications for Washington and Sacramento.

The persistent lack of new jobs has been a dominant issue in the reelection bid by President Bush whose administration had estimated last fall that federal tax cuts would help create 200,000 net jobs a month. But the U.S. economy has added an average of only 60,000 payrolls a month since August, and by UCLA's reckoning, that will improve to about 125,000 over the next couple of years -- still 25,000 shy of what's needed just to keep the jobless rate from rising.

"It isn't going to turn around on a dime between now and November," said Michael Bazdarich, author of UCLA's national report.

The short-term outlook for California wasn't much brighter. Although UCLA analysts didn't change their employment projections from their December report, they reduced expectations for taxable sales and maintained that Californians' incomes will show modest growth this year. That puts their estimates for these two big state revenue generators considerably lower than figures used by Schwarzenegger's team in calculating California's budget.

In recent years, former Gov. Gray Davis and the Legislature had relied on rosy economic forecasts and revenue estimates, only to find out later that they were too optimistic. That contributed to the state's massive budget deficit because government spending was based on those projections.

When Schwarzenegger submitted his first budget for 2004-05 in January, analysts regarded his economic assumptions as fairly conservative. His $99-billion budget relied on Finance Department projections for tax revenue growth based in part on U.S. gross domestic product expanding by 4.2% next year, nonfarm payrolls in California rising by a weak 1.1%, state personal income gaining by 5.6% and taxable sales climbing by 5.8%. The Legislative Analyst Office's forecast generated in February is right in line with those figures.

But UCLA's latest estimates, while in agreement on GDP and job growth, show personal incomes rising about a percentage point less and taxable sales off 1.6 percentage points from the Finance Department projections.

The disparity in forecasts can mean billions of dollars in state tax revenue.

H.D. Palmer, spokesman for the Finance Department, said Wednesday that the governor would be presenting a revised budget in mid-May. "We will update our economic and revenue forecast," he said. But Palmer added that UCLA's economic forecasts have historically been lower than his department's estimates.

Indeed, in recent years UCLA analysts have been more pessimistic about the economy than government prognosticators, as well as most on Wall Street and private industry. Yet UCLA was among the first to predict the 2001 recession.

Sung Won Sohn, Wells Fargo Bank's chief economics officer, said UCLA's latest statistics were on the low end of forecasts. In his view, the U.S. economy could easily add as many as 200,000 jobs a month in the second half of this year.

Sohn offered a cautionary note, however: If oil prices rise any higher or interest rates turn up soon, economic and job growth could falter. As it is, he said, consumers' real income has been stagnant, and their confidence has waned recently.

UCLA analysts believe that consumers already are at the brink and that their spending won't fuel the economy -- as has been common during expansions -- especially with diminished effects of the strong housing sector and federal tax cuts. Nor will business spending boom, as in past recoveries, because company investments remained high even during the downturn.

That leaves one major engine: U.S. exports, which UCLA sees as carrying the economy. With foreign markets expanding and the weak dollar making domestic goods cheaper abroad, factories will ramp up production and finally boost hiring.

"With the latest surge in outsourcing nearly complete, U.S. industrial output and job growth should improve markedly," the report said, projecting 45,000 net new factory jobs a month, contrasted to an average loss of 70,000 a month since July 2000.

UCLA's Bazdarich said he had no hard evidence that outsourcing was slowing. And his report didn't mention the offshoring of services, such as call centers and financial activities, to places like India. But he said it made sense that the shifting of factory jobs would be easing. Many manufacturers have wrung out about as much productivity gains from outsourcing and existing workers as possible.

Jack Stewart, president of the California Manufacturers & Technology Assn., said there's no question that manufacturers are enjoying brisk sales. But he doesn't see any hiring spree in California, not with concerns about the state's high workers' compensation and other costs.

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