UCLA forecast predicts double digit unemployment until 2012, slow growth

Both California and the nation as a whole will continue to experience slow growth, but unemployment will remain in double digits until 2012, UCLA economists said today.

The UCLA Anderson Forecast noted in its first quarterly report of 2010 that the Gross Domestic Product is growing while job creation remains scarce.

UCLA Anderson Forecast Senior Economist David Shulman suggested the federal economic stimulus package may have unintentionally caused this "economic schizophrenia."

He wrote that tax cuts and spending programs, "coupled with a non-sustainable zero-interest policy," do spur growth, "but businesses do not make long-term hiring decisions based on temporary government policies.

"Nevertheless, the economy is now on a growth path and employment will soon be increasing, albeit modestly," Shulman wrote.

The forecast predicted continued recovery, based on strength in business equipment and software, exports, and a revival in home construction from postwar lows.

According to the forecast's authors, the national economy will grow 3.2 percent in the first quarter of this year, then level off to about 2 percent, leaving 2010's overall growth at around 2.3 percent.

In 2011 and 2012, GDP is forecast to grow 2.3 percent and 3.2 percent respectively, although payroll employment at the end of 2012 will remain 2 million jobs below the 2007 peak, the forecast said.

The real risk to the economy is inflation, which has been encouraged by the Federal Reserve's monetary policies, according to Shulman. But the Fed understands this risk and will tighten monetary policy, keeping inflation under control, he wrote.

In the forecast's section on California, UCLA Anderson Senior Economist Jerry Nickelsburg noted that the economy continues to shed jobs even though the recession has officially ended.

The outlook for the balance of 2010 is for little or no growth in the state, with the economy picking up speed slightly by the beginning of next year and more normal growth rates appearing by the middle of 2011, according to the forecast.

California's unemployment rate – now 12.5 percent – will fall slowly through the balance of this year and should average 11.8 percent for 2010, according to the forecast, but the economy, even growing, "won't be generating enough jobs to push the unemployment rate below double-digits until 2012." It said employment would rise in California this year but not to exceed 2009 levels.

Real personal income growth, meanwhile, was forecast to be 1.3 percent in California this year, 3.7 percent in 2011 and 4.5 percent in 2012.

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