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Slow growth is predicted for state economy

UCLA economists warn, however, that China and Europe pose big threats.

September 20, 2012|Ricardo Lopez

California's tech boom is bolstering the economy and new jobs are being created every month, but the state's employment gains in the last year could be largely lost should conditions in China and Europe worsen substantially.

The quarterly UCLA Anderson Forecast, released Thursday, said an imploding Eurozone crisis and a further slowing of the Chinese economy, though not likely, are "not out of the question."

"What happens in Europe and China is not insignificant for California," said Jerry Nickelsburg, senior economist at the forecast. "Though we don't see international events driving the U.S. and California into another recession, we do need to be cognizant of what happens because we are tied to them."

Direct exports from California to China and Europe account for about 25% of total exports, Nickelsburg said.

And total direct exports of goods from California make up 8.1% of the state's gross domestic product, the value of all goods and services in the state. Manufactured computers and electronics make up 30% of that total.

In his report, Nickelsburg found that if the Eurozone crisis deepens, it would result in as much as a 1-percentage-point decline in the nation's GDP growth. California's economic growth rates have been historically similar to that of the country as a whole.

Should the global economy worsen, the state could lose 165,000 jobs, primarily in the manufacturing and trade sectors, Nickelsburg wrote. Those job losses also include other industries that would be affected because laid-off workers would spend less.

If exports from the U.S. to Europe decline 20%, the state's unemployment rate would increase 1.1 percentage points and so would the national jobless rate.

For now, though, the state should benefit from a predicted growth in net exports next year, the report said.

The report comes a day after FedEx Corp. cut its earnings outlook amid a slowing global economy. The shipping giant, seen as a bellwether of the economy, reported difficulty in trimming operating costs because customers are choosing cheaper shipping options, such as by sea and land, rather than by air.

Absent a steep drop in exports, the UCLA forecast was largely unchanged from last quarter.

It calls for continued slow growth with payrolls rising 1.7% through the end of the year, 1.5% next year and 2.3% in 2014.

The state's unemployment rate, the third-highest in the country, is not expected to fall below 10.7% before the end of the year. Next year, the average unemployment rate is predicted to be 9.8%, falling to 8.5% the following year.

The national economy is going to grow more slowly than California's, the report said.

David Shulman, another senior economist with the forecast, wrote that "tepid GDP growth" nationally has helped to keep a lid on employment gains.

Even national job growth of 160,000 a month next year "will not be sufficient to make any real dent in the unemployment rate," he said.

One reason for sluggish economic growth, he said, was that consumers in California and nationwide were still weighed down by debt, restricting their spending.

A bigger concern, though, is the so-called fiscal cliff, the year-end expirations of several tax cuts and the prospect of automatic spending cuts should Congress fail to act this year on a host of bills.

Nonetheless, the U.S. economy should grow at an annual rate of 1.3% in the current quarter, rising to 1.5% later this year, the UCLA forecast said. The pace should top 2% next year, Shulman predicted.

The bright spot, however, is the strength in residential and nonresidential construction, which is expected to boost GDP growth to more than 3% in 2014.

--

ricardo.lopez2@latimes.com

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