UCLA Forecast: California's Resilient Economy Could Outperform Nation During Recession


Port of Los Angeles: In a "soft-landing" scenario in which the nation avoids a recession, "California grows, and in fact continues to grow faster than the U.S., led by more construction, an ample rainy-day fund for state government," UCLA forecasters say.

The UCLA Anderson Forecast released a report on Wednesday stating that California's economic future remains uncertain as financial experts wait for news on the Federal Reserve's plans to combat inflation. However, the report predicts that California will experience a milder impact from any decisions made at the national level compared to the rest of the country. In a "soft-landing" scenario where the nation avoids a recession, the state is expected to continue growing faster than the US due to increased demand for defense goods, labor-saving equipment and software, and more construction. In this scenario, the state's unemployment rate is predicted to be 4% in 2023, followed by 3.9% next year and 3.6% in 2025.

In the event of a recession, the state's economy is predicted to decline, but by less than the rest of the country. The report estimates that the state's unemployment rates will be 4.3%, 4.8%, and 3.7% in 2023, 2024, and 2025, respectively. Non-farm payroll jobs are expected to grow at 1.1%, -1.2%, and 1.9% rates during the same three years.

The report also notes that in the non-recession scenario, mortgage interest rates will rise, but the state will experience increased homebuilding through 2025 due to the demand for limited housing stock and new laws permitting ADUs to be built in single-family house-zoned neighborhoods throughout the state. The report predicts that permit numbers will grow to 150,000 in 2025. In a recession scenario, the report estimates 92,000 net new units being permitted this year, growing to 152,000 in 2025.

The report concludes by stating that the Federal Reserve's decisions on aggressive tightening or moderation will play a critical role in the country's economic growth. However, the report predicts that California's economy will experience a milder impact from whichever path the Federal Reserve chooses to take. While the nation is not currently in a recession, the report suggests that any recession might occur towards the end of 2023, with the caveat that the US economy might avoid a recession altogether through 2025.

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