This recession will be the longest and most damaging of the postwar era, according to the latest forecast report from University of California, Los Angeles, spanning an estimated 19-24 months and building to a U.S. unemployment rate of 10.5 percent in mid-2010.
In "The Global Slump," one of the economic reports featured in the UCLA Anderson Forecast, senior economist David Shulman states that most of the "contractionary forces" on the economy "will have been spent" by the close of 2009. But the employment recovery from this recession "will be long and arduous," he notes, with the unemployment rate sticking above 9 percent through the end of 2011.
The housing market "can’t get much lower," the report states, and calls for a "tepid recovery" in 2010.
The loss of wealth has been extensive: Consumers have already lost an estimated $5.5 trillion in home values and $9 trillion in stock values.
"With economic output falling virtually everywhere, the mid-decade global boom has given way to the worst global bust since the 1930s," Shulman writes.
He characterizes the response to the economic emergency by the Fed and Obama administration as an "’all-in’ fiscal policy," and expressed "doubts about the full efficacy of the administration’s policies."
Even the $787 billion stimulus package appears as a "drop in the bucket," he states, and the uncertainty surrounding the bevy of passed and proposed economic Band-Aids won’t necessarily encourage individuals and businesses to engage in purchases and investments.
"Over the longer term, we question the whole consumption orientation of the Obama proposals," Shulman states.
Inflation will likely creep up on the U.S. economy in late 2011 or thereafter, his report states.
A separate report by Edward E. Leamer, forecast director, describes the regression of the U.S. economy as heading "backward into the future. It’s awkward and slow, but it’s the only way to go."
While consumers have become thriftier in their spending, severe cuts in spending could actually impair savings in the future, as it could drive declines in income, Leamer notes.
He states, "The job ahead is to turn our malls into factories, meaning less shopping and more manufacturing. We need to save more and reduce our dependence on foreign lenders. We need to produce more of what we buy right here, and we need to sell more exports to pay for our imports."
Turning off the spending spigot completely "will simply idle the malls without compensating production and jobs in our factories," he says. …CONTINUED
Construction jobs have sunk by 12.9 percent during this recession, according to Leamer’s report, with durable manufacturing down 12 percent.
An "ideal stimulus" plan, according to Leamer, has a focus on homes, cars, retail businesses and restaurants, and he questions the adequacy of the Obama administration’s stimulus package.
Leamer calls the stimulus package’s $8,000 tax credit for first-time buyers a good step, though its effects are "likely to be late in the year, as buyers wait for even lower home prices."
And he estimates that there is a "$600 billion problem" that is growing, based on retreating personal consumption spending and residential investment — for which the stimulus provides "a hopelessly inadequate remedy."
A separate, California-focused report, "The California Economy: Running Out of Gas," declares that the "the correction in the housing market is almost complete" in the state and "the downturn in the retail sector is nearing the end of its run.
Jerry Nickelsburg, senior economist for the UCLA Anderson Forecast, states that general economic weakness across California will lead to continuing job loss in construction and manufacturing sectors — it hit a 26-year high at 10.5 percent in February.
"Significant increases" are likely ahead in the state’s unemployment rate through mid-2010, Nickelsburg states, and the latest federal stimulus plan won’t mean much for the state in the short term.
The forecast calls for a peak of 11.9 percent unemployment during second-quarter 2009, averaging 11.7 percent for the full year. And state unemployment is expected to remain in double digits until 2012.
Home prices in California are off by an average of 32 percent since peaking in 2006, according to the report, "and all of the appreciation since early 2004 has been lost."
Adjusted for inflation, fourth-quarter-2008 home prices were about 6.8 percent above fourth-quarter-2002 levels.
While the drop in prices has been a big step toward recovery, "Continued job loss in California is going to lead to more foreclosures and more uncertainty about the ultimate bottom in housing prices," Nickelsburg states.
Prices may be "tempting enough" and the supply may be low enough in late 2009 to realize the recovery and to pull residential construction out of its three-year slump, he states.
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