No Recession Forecast For California, Nation

California's economy moves in lockstep with the nation's. There will be no recession. However we are in what the Anderson Report is calling a "Credit Recession."

by Broderick Perkins
© 2008 DeadlineNews.Com

Deadline Newsroom - California will not suffer a recession in 2008.

That's because the Golden State's economy tends to mirror the national economy -- or vice versa -- and the nation will limp along with only one quarter of negative economic growth this year.

The highly accurate Anderson Forecast from the University of California at Los Angeles said in its first quarterly report for 2008, that its "no-recession forecast" remains "nervously intact."

The housing slump and subprime mortgage induced credit crisis -- as well as a weak U.S. dollar and energy cost-related inflation -- are putting California's economy in a vice, but the squeeze isn't enough for a recession.

The greatest recession risk is rooted in insolvency problems faced by lending institutions. That makes conditions ripe for a credit recession, rather than a full-blown economic recession.

Staving off a national economic recession, the Federal Reserve is pumping billions of dollars into Wall Street and continually lowering interest rates.

The Anderson Report says the housing drag on the economy should begin to dissipate this summer. With a stronger housing market, a return to a normal economy should begin in 2009.

Until then, the nation will experience only one quarter of negative growth in the Gross Domestic Product or GDP. The GDP is the output of U.S. goods and services produced by labor and property.

Two consecutive quarters of negative GDP growth is a strong indicator of a recession.

The official keeper of recession period data, the National Bureau of Economic Research, includes income, employment, industrial production, wholesale and retail sales and other factors when it maps recessionary periods.

The real estate sector and credit crisis are big drains on the economy but not enough to stop economic growth long enough for a recession to set in.

UCLA Anderson Forecast Economists Ryan Ratcliff and Jerry Nickelsburg, looked in the rear view mirror at the California economy since World War II and made two conclusions.

First, the U.S. and California economies move in lockstep. There has never been a recession in California without a national recession.

The recession-only downturns have been sharp-but-short contractions driven by temporary job losses in manufacturing and construction. They lasted less than a year.

Second, California recessions have twice been amplified and extended by long-lasting structural adjustments - the Southern California military aerospace grounding in 1990 and the Northern California dot combustion in 2001. Those recessions took more than a half-dozen years to complete.

The dot com bust gave way to a more housing based economy and a landmark residential real estate boom.

UCLA Anderson Forecast Director Edward Leamer reported, "Our no-recession forecast remains nervously intact. We see a lot of problems in the first half of 2008 as housing remains a drag on GDP growth and weakness in personal consumption contributes as well...The labor market is sluggish and unemployment elevates to 5.5 percent by the end of 2008. But the housing drag on GDP dissipates in the second half of the year and a normal economy returns in 2009."

However, in an accompanying article "The Credit Recession," authored by Senior Economist David Shulman, Shulman expects credit losses, now in excess of $150 billion to eventually surpass $400 billion. That will have a gloomier, longer-term, wider-range impact on housing.

Shulman says the current economy is, "a perfect storm consisting of the worst credit crunch in decades, falling house prices and $100 oil. If history and global experience is any guide, the hangover from the mid-decade credit boom could last for quite some time."

© 2008 DeadlineNews.Com

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Broderick Perkins, an award-winning consumer journalist of 30 years, is publisher and executive editor of San Jose, CA-based DeadlineNews.Com, a real estate news and consulting service, and the new Deadline Newsroom, DeadlineNews.Com's new backshop. In both cases, it's where all the news really hits home.

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