California and the nation will escape a recession in 2008 despite rising oil prices, sinking housing prices and a turbulent stock market, a UCLA study released today predicts.
"Be calm my friends. Be calm," wrote UCLA Anderson Forecast director Edward Leamer in the latest quarterly report from the group.
A recession -- negative economic growth for two consecutive quarters -- probably will be averted next year, the forecast says, noting that the economy has already taken some of its hardest hits.
Nationwide, unemployment would have to climb to 6% from the current 4.6% to cause a recession, the forecast said. Such an increase would require the loss of 2 million more jobs. Cuts on that scale won't be possible, the Anderson report said, because job growth was weak throughout the current economic expansion.
"How can we lose jobs that we never found?" the report said.
Though the economic outlook was largely cloudy, it did include some silver linings:
The loss of 3 million manufacturing jobs early this decade means there is little room to cut more positions.
Most of the damage to the economy from the housing slump will be over by the end of next year.
The weak dollar will help U.S. exports, aiding manufacturers in Southern California.
Consumer spending will drop, but much of the effect will be shouldered by other countries as U.S. imports of their products decline.
The Federal Reserve will meet Tuesday and is widely expected to cut its benchmark interest rate for a third time to help avoid a recession. That reduction -- and more next year -- will be needed to ward off a recession, the forecast said.
"Should the Fed fail to ease significantly, we believe our 'no recession' forecast would be at significant risk," the study said.
UCLA economists also predicted that stock prices would rise 10% to 12% next year amid calming credit markets and modest economic growth.
In California, the economy will be hit hard by the weak real estate market, falling government revenue and the Hollywood writers' strike. But like the nation, the Anderson Forecast projected that recession would be averted.
"It gets pretty ugly, but still no recession," the report said. State government will face a budget shortfall of $8 billion over the next two fiscal years because of weaker than previously expected income, sales and corporate tax collections, the study said. That shortfall would be greater than the state's spending on the University of California and California State University systems combined, the report said.
