UCLA Forecast Bullish on Economy

The UCLA Anderson Forecast, which issued its quarterly prognosis Wednesday, painted a rosier picture of the U.S. — especially next year and the year after.

LOS ANGELES — Things are slowly getting better.

That’s the consensus of the UCLA Anderson Forecast, which issued its quarterly prognosis Wednesday and painted a rosier picture of the U.S. economy — especially next year and the year after — than its gloomy reports in recent quarters, with key economic indicators, including gross domestic product and the unemployment rate headed in positive directions. Although there could be speed bumps halting economic progress, such as sequestration and delays in tax refunds, the forecast’s economists concluded they would have little effect on the economy’s forward lurch.

David Shulman, senior economist at the UCLA Anderson Forecast, described himself as “uncharacteristically upbeat.” “We think the economy is positioned for real growth,” he said. When discussing the sequester, he emphasized, “It’s not going to be apocalyptic.”

Breaking down the economic figures, Shulman detailed that the U.S. is moving from GDP growth in the 2 percent range to GDP growth in the 3 percent range. Specifically, the UCLA Anderson Forecast predicts a 1.9 percent GDP gain this year, followed by gains of 2.8 percent and 3.1 percent in 2014 and 2015, respectively.

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Turning to jobs, Shulman relayed that job growth in 2013 should match the growth experienced in 2012, when the U.S. added 180,000 jobs a month. Next year, he said job increases are expected to reach 200,000 a month and, in 2015, they should hit 220,000 a month.

The job growth will lead the unemployment rate to drop to 6.5 percent in 2015, according to Shulman. He pointed out that the Federal Reserve is likely to hike interest rates when that 6.5 percent unemployment rate is reached. “It’s not going to be the 5.5 percent or 5 percent it was when we started [before the recession,] but it is still a lot better than the 10 percent where we were,” said Shulman.

Recoveries in the housing market and automobile sales are the driving forces behind the U.S. economy’s upswing. The UCLA Anderson Forecast estimated there were 781,000 housing starts last year, up from 612,000 the prior year, and anticipated the amount will escalate to 1.35 million this year, and 1.56 million in both 2014 and 2015. Automobile sales are projected to increase from 14.4 million last year to 16 million in 2015.

The economy isn’t without trouble spots. Shulman underscored that the recessions in Japan and Europe are a drag on U.S. exports, but forecast Europe would pull out of its recession in 2014. Looking ahead, he also raised a red flag about inflation, which he said could exceed 2 percent in 2014. Rising residential rates are behind the inflationary trend.

Shulman’s perspective on the U.S. outlook will undoubtedly offer some solace to manufacturers and retailers reading the economic tea leaves, but a deeper dive into the UCLA Anderson Forecast’s predictions exposes further reasons for concern. Growth projections for disposable income show solid lifts from a percentage bump of 1.8 percent this year to 5.3 percent next year and 5.8 percent in 2015, but spending on clothing and shoes isn’t mounting as quickly. This year, it is expected to climb only 1.1 percent, followed by a 0.9 percent rise next year and a 1.3 percent jump in 2015.

After Shulman spoke Wednesday at UCLA Anderson School of Management, Jerry Nickelsburg, adjunct full professor at the UCLA Anderson Forecast, provided insight into California’s economy. He related that the state would experience a disproportionate share of improvement as the U.S. economy rebounds, especially in the state’s advantaged coastal areas. California’s unemployment is expected to average 9.6 percent this year, and fall to 8.4 percent next year and 7.2 percent in 2015.

“We still have this bifurcated economy [in California]. We haven’t made much progress in having the inland parts of the state catch up with the coast,” said Nickelsburg.

Dov Charney, founder and chief executive officer of American Apparel Inc., did his part to tout the economic benefits of the state — Los Angeles, in particular — during an executive panel that came after Shulman and Nickelsburg’s presentations. He applauded the state’s large population of 38 million, and Los Angeles’ extensive transportation infrastructure and manufacturing facilities. “Those that can master manufacturing here, we have a competitive advantage,” he said, noting that the competitive advantage would become even sharper as labor costs in China skyrocket.

But Charney was not entirely pleased with the business environment in the state. He pleaded with government officials to pass immigration reform. “We need to legalize the approximately 2 million undocumented workers in the Southern California region because they are working,” said Charney, adding, “We have all these people living here that love America, that love Los Angeles, but can’t participate in the economy.”