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Calif. economy to stay sluggish into '09

September 24, 2008 12:00:00 AM PDT
The latest economic forecast for the state of California says things will get worse before they get better.At JR's Diamonds and Jewelry in Sherman Oaks, there is clear evidence of a troubled economy. "It's been a very tough time for us. There's been a substantial drop off in the size of the purchases," said jeweler Jeff Rosen.

According to the UCLA Anderson Forecast released Wednesday, the California economy will stay sluggish for the next 18 to 24 months. UCLA economists say falling home prices and foreclosures will continue well into 2009.

"Our forecast for the next 12 months is for no growth in the California economy," said Jerry Nickelsburg, UCLA.

Economists at the quarterly UCLA Anderson Forecast conference are stopping short of saying California is a recession. They say there will be some growth in California, maybe 1 1/2 to 2 percent, which will keep the state from delving into recession territory.

Economists went over the specifics of the report at the conference held at UCLA campus Wednesday morning. They say the sluggish economy is characterized by falling home prices and increasing foreclosures amid continued job losses. They expect the next year-and-a-half to two years to be rocky in California until the struggling construction and financial sectors bottom out.

"There's no work. You look in the papers, there's no ads for construction, carpenters," said carpenter Ralph Dunning.

The job market looks bleak. UCLA economists had said previously that the diversified economies of Los Angeles and the Bay Area were ensuring continued job growth in the state, despite the housing downturn. But over the past three months, that situation has changed.

Experts say July's unemployment report was "ugly." Government employment growth zeroed out, as did services. Last month the unemployment rate hit a 12-year high of 7.7 percent -- a 40 percent increase from one year ago. Though there are no clear signs of a freefall, the recent employment data suggest tough times in California labor markets for the rest of 2008, if not into 2009.

"California's growth will continue to be slow and where we have 6 percent unemployment rate to the U.S., we will probably have over 7 [percent] in California," said economist David Shulman. "It's as close as you can get to a recession without having one."

A small rebound is expected in California's work force next year and into 2010, about 1 percent over the next two years.

Some may also be wondering when the housing market may bottom out.

"What is interesting is that they are falling more rapidly than ever before. And that means they will hit bottom sooner than before. We're expecting that to occur in the middle of 2009," said Nickelsburg.

The lack of growth is expected to hit retailers hard as well.

"The potential of having to lay off one or two people is definitely very real," said Rosen.

Nickelsburg says the turning point depends on when the struggling construction and financial sectors bottom out and when the California budget gridlock finally settles.

Eyewitness News reporters Lisa Hernandez and Micah Ohlman contributed to this report.

 

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