California's Economy is Stronger Than Ever - Why is it Slowing Down?

LOS ANGELES (CNS) - California's economy, which has been generally going strong for years, is beginning to slow down -- but predictably so -- thanks to the combination of a strong labor market and tight housing market, according to a UCLA economic forecast released today.

The slowdown was predicted as long as two years ago, and despite the change, employment growth is expected to continue into 2019, according to the UCLA Anderson Forecast.

``The engine of growth driving a significant part of the U.S. recovery seems to have run out of its full head of steam,'' Anderson Forecast Director Jerry Nickelsburg wrote in his report. ``The business, scientific and technical services sector and the information sector -- home for much of the tech boom -- have ground to a growth halt in much of the state.

``But what sounds bad on the surface is just a symptom of good labor markets and tight, very tight, housing markets,'' he wrote.

He noted that the Anderson Forecast predicted the 2017 slowdown in terms of employment two years ago.

``Through October of 2017 we are right on track with a 1.3 percent gain for both payroll and total employment,'' he wrote.

``Job gains and losses depend on business conditions. When firms are doing well, they expand and hire more workers and when they are doing poorly they do the opposite,'' Nickelsburg wrote. ``A key element to this process is finding the workers that fit the firm's requirements. Coming out of a recession when many skilled workers are unemployed, it is not difficult to hire. In an economy going full bore, one has to search longer, or engage in in-house training or both to fulfill the requirement.

``This is where we are now in California and it is a story about good job markets and constrained housing markets.''

Nickelsburg predicted total employment growth of 1.2 percent for 2017, then 1.5 percent and 1.1 percent in the next two years. Real personal income growth is expected at 1.6 percent this year and 3.1 percent and 3.6 percent in 2018 and 2019.

On the national front, Anderson Forecast Senior Economist David Shulman wrote in his report that the U.S. economy is growing at about a 3 percent rate, and that is expected to continue through the second quarter of 2018.

``However, as the unemployment rate drops below 4 percent and employment growth stalls in the face of a labor shortage, economic growth will drop back to the 2 percent growth rate we have been used to since the end of the financial crisis eight long years ago,'' Shulman wrote. ``Indeed, by the end of the forecast horizon in 2019, real GDP growth could very well be running at a rate below 1.5 percent as the outlook becomes cloudy.''

Shulman noted there is uncertainty about the economy given the tax bills working their way through Congress, particularly with possible changes in corporate tax rates.

``It looks like 2018 is shaping up to be a pretty good year,'' Shulman wrote. ``There is momentum coming from the recent strength in 2017, strong equipment spending, the likelihood of a tax cut and a consumer that is benefiting from higher asset prices and the prospect of higher wages.''

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