The sluggish housing market is starting to drag down the rest of the economy, leading UCLA forecasters to conclude that although the U.S. is not actually in a recession, "it is certainly close."
The nation's economy grew by a sickly 0.6% in the first three months of the year, the smallest increase in four years and a sharp decline from the fourth quarter of 2006, according to the widely watched UCLA Anderson Forecast.
UCLA economists don't think economic growth will slip for a second straight quarter, which would signify a recession. But they predict that the economy will stay in a funk till next year as falling home values and rising gas prices put a crimp on consumer spending.
"We suspect that the weakness in the housing market is finally spilling over into consumption spending," wrote senior economist David Shulman in the quarterly forecast being released today. "Retail sales appeared to stall in April and automobile sales have become decidedly weak.
"This is not a recession, but it is certainly close," Shulman said.
The Anderson Forecast is closely watched because it predicted the 2001 recession before others.
In a separate report on the California economy, UCLA forecasters predicted home values would continue to fall slightly or remain flat in most parts of the state as many homeowners struggled to make higher payments on adjustable-rate mortgages.
"The pipeline of mortgage resets suggests it may be mid-2009 before California sees a normal housing market again," said the report by economist Ryan Ratcliff.
Randy Becker doesn't need to read UCLA's forecast to know the housing market is in a world of hurt.
A Redlands-based subcontractor, Becker helps developers hook up their new homes to sewer lines. With the fall-off in new construction, Becker has laid off more than 40 workers -- or about half his staff -- since last fall.
"Builders used to sell 14 homes a week; now it's four a month," he said. "When I lay people off, I tell them it's nothing personal, but I can't make any promises."
To keep his people busy, Becker is competing for contracts in Arizona and Central California. His company, Advanced Underground, no longer farms out jobs such as laying wires and cables -- it keeps the work in-house to save jobs.
"It's a matter of survival," he said. "We will tweak and bend and do whatever we need to do to stay busy."
Like UCLA, he sees the tough times lasting for about two more years.
