Tuesday, March 11, 2008

"No Recession This Time" -- UCLA Anderson Forecast


Bucking conventional wisdom, the UCLA Anderson Forecast reports that the US is only flirting with recession and will not enter a two-quarter period of declining economic activity. Anderson Forecast Director Edward Leamer said, "we are holding form: no recession at this time," and points out that industrial production growth remains strong. California lost 358,000 manufacturing jobs in the 1991 recession; in the current period, major job losses in California have been 106,000 construction and 55,000 financial sector jobs. Forecasters predict that California will peak at 6.0% unemployment at the end of 2008. In short, California -- and the nation -- should be able to weather the storm.

The major drag on the economy -- no surprise -- is the national housing market. Buyers who financed properties with little or no downpayment find themselves with no equity or "upside down" and are being foreclosed upon or are simply walking away from properties. These cases may not be related to job-losses, but to a declining housing market coupled with interest rates that still remain high, despite the Fed's lowering of short-term rates.

UCLA is holding a contrarian position. Goldman Sachs and a former Treasury Secretary both have reported that the US is currently in a recession. But UCLA also held a contrarian position before, in 2001, when they correctly predicted the recession. Said Leamer, "we got it right and we stood alone back then."

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