Brushing aside conventional wisdom, UCLA economists say California and the nation will survive the housing slump and job losses without plunging into recession -- although it will still be miserable for many Americans.
"We are holding firm: no recession this time," UCLA Anderson Forecast Director Edward Leamer said in a report being released today.
Industrial production growth remains strong, the quarterly report notes, and consumer spending on big-ticket items such as refrigerators is expected to keep climbing -- albeit by just 0.3% this year, from 5% at the end of 2007.
Housing remains the big drag on the economy, UCLA analysts say. But they say the rising tide of foreclosures is related more to falling prices and escalating interest rates than to job losses, which triggered previous spikes in foreclosures.
People "are walking away from their homes in droves not because they lost their jobs but because home prices are falling," Leamer said.
Many prominent economists and institutions, including Wall Street powerhouse Goldman Sachs and former Treasury Secretary Lawrence H. Summers, have already declared the economy to be in recession. That is commonly defined as two consecutive quarters of decline in gross domestic product.
UCLA predicts that GDP will dip by 0.4% in the second quarter of this year, but then rebound. Anderson expects GDP to be growing at 2.5% by the end of this year.
In staking out the contrarian position, Leamer noted that UCLA bucked other forecasters in 2001 by correctly predicting that year's recession.
"We got it right, and we stood alone back then," he said. In jest, he added later that he had "submitted my resignation letter, in the event I am wrong."
Whether truly in recession or not, Leamer said the economy would be sputtering. It remains so fragile that "if there is a quick halt to consumer spending, we will for sure have a recession in 2008," he added.
"The question is whether [2008] will be disappointing or horrible; our forecast is disappointing," he said in an interview.
The Anderson forecasters contend that the economy has been wounded mainly by the collapse of residential real estate. The number of jobs overall will continue to increase, but not at a pace fast enough to employ the growing numbers of people seeking work.
National unemployment will peak at 5.6% at the beginning of 2009, according to the forecast, from 4.8% currently.
