The local and national economies will soon be getting “better, but not good,” with housing-sector problems expected to bottom out this summer and pave the way for “recovery mode” in 2010, according to this year’s Economic Forecast produced by Cal State Long Beach’s Office of Economic Research.
The bad news, said Joseph Magaddino and Lisa Grobar, who are CSULB economics professors and directors of the forecast project, is that they expect to see weak levels of consumer spending and higher unemployment rates.
“Well into 2010, unemployment will continue to rise,” Magaddino said. “It will peak above the 10 percent margin and will come back slowly.”
According to the report, the only categories of the private sector that have not had significant job losses since last year’s forecast were education, health care, and leisure and hospitality.
At the Economic Forecast conference in downtown Long Beach on May 14, Grobar characterized the economic downturn in Southern California as a “two-phase recession.”
She said it began in housing-related sectors in 2007, with consequent job losses in finance, construction and real estate. The second phase, she said, began recently with “steep downturns in retail, manufacturing [and] professional services.”
Grobar said that, although the housing sector is recovering, she expects a double-digit decline in taxable sales in Southern California.
“This is one of the worst forecasts for taxable sales that I ever remember producing,” Grobar said.
She said this means job losses in the retail sector will only worsen in the coming year and that this decline may hurt local governments.
“That is really going to put some strain on the local governments that depend on those revenues,” Grobar said.
Grobar expects job growth to resume by the end of 2010, but for retail spending to pick up sooner.
The forecast, which examines national economic trends and trends in local counties, says Los Angeles County was the “best-performing area” in Southern California and that Orange County is expected to be the “best-performing area” in 2011.
In the optimistic view, Magaddino said levels of consumer spending will begin to move upward by the end of 2009 as a result of “pent-up demand.” He noted that while the economy is still declining, it is now doing so at a slower rate.
The pessimistic view, he said, is that the positive trends will not take root, and that the economy will not recover until the end of 2010.
The forecast report analyzes the possible effects that the American Recovery and Reinvestment Act will have on the economy.
Magaddino said the $789 billion in spending outlined in the bill will provide a safety net for Americans losing jobs and aid state and local governments that will be suffering from low tax revenues.
“But the reality is that by the time this money hits the street, the economy will be in recovery mode,” he said.
He went on to say that the Obama Administration would have to raise taxes and cut expenditures in the coming years.
“The Obama Administration will face very, very tough choices,” Magaddino said.
This was the 15th economic forecast produced by CSULB’s Office of Economic Research, which is an auxiliary agency of the economics department. Magaddino and Grobar worked with CSULB student Jered Elmore to produce the report.
“What happened this year is the hardest thing to forecast: a dramatic, sharp downturn,” Grobar said.
The research team picks up on historical trends to get the overall “story” of the national and local economies, Grobar said. “But it’s not a crystal ball.”