The resilient U.S. economy is approaching a crossroads, says the UCLA Anderson Forecast | Bot To News

Key takeaways

  • Economists at UCLA Anderson Forecast expect the last quarter of 2022 to be strong for the country as conditions encourage consumption and business investment.
  • Whether the US economy continues to grow or slip into a mild, short-term recession will depend on the Federal Reserve’s monetary policy decisions in the coming months.
  • The economic outlook for California is also uncertain, but local economic forces should lead the state to a more moderate result.

As 2022 draws to a close, the US economy has reached a recession-related bifurcation. According to Anderson’s UCLA forecast, one path would lead to continued economic growth — albeit slower than the recent 2.4 percent growth rate — while the other would be a relatively mild, short-lived recession.

Despite dire predictions from some business leaders, the nation’s economy has proven resilient as consumers continue to spend and businesses continue to invest. Whether or not the economy slips into a recession will largely depend on the persistence of inflation and any additional measures taken by the Federal Reserve to reduce inflation.

An important difference between the two scenarios is the Federal Reserve’s decision to set monetary policy. In the coming months, the Federal Reserve will have to decide between two paths: further aggressive tightening and moderation. Both projected scenarios provide the most likely outcome of each.

The economic outlook for California is similarly uncertain, and as with the national economy, the source of that uncertainty is national economic policy. The December forecast for the country – like the December forecast for the US – consists of two scenarios. The difference between the country and the nation in both scenarios is that economic forces from sectors including construction, non-information technology and defense will lead the country to a more moderate result.

National forecast

Whether the United States avoids a recession or endures a short-term economic downturn depends on the central bank’s measures to curb inflation. Regardless of Anderson’s forecast, UCLA expects the last quarter of 2022 to be strong for the country from an economic perspective, with conditions buoyed by consumption and business investment.

Furthermore, the two scenarios differ. If the country does not go into recession in 2023, economic growth is expected to slow down in the first quarter of 2023 and almost disappear in the second quarter. From there, the economy is expected to pick up again in the last six months of 2023.

If a recession occurs, the economy is expected to contract at an annual rate of 2% to 3% in the second and third quarters, remain flat for the last three months of 2023, and then begin to recover. in 2024.

If a recession does occur, it will be relatively mild and short, economists write, with consumer resilience key. In the recession scenario, consumption is expected to remain flat in the first two quarters of 2023 and to contract modestly in the following two quarters. The forecast predicts consumption growth under both scenarios for 2024.

Historically, Fed-led recessions have resulted in stronger declines in business and housing investment. With higher interest rates and uncertainty around consumption, businesses have cut back on capital investment and inventory replacement. Both recessionary and non-recessionary scenarios would be characterized by falling housing prices, with slightly larger declines in the recessionary scenario.

In both cases, inflation moderates at roughly the same rate until mid-2023. Economists at The Forecast believe that if there is no recession, it will be in part because supply chain pressures will ease more quickly and inflation will fall more quickly on its own. Under a recessionary scenario, falling housing prices would moderate the reduction in the supply of new housing.

California forecast

The good news is that the actions taken by the Federal Reserve will have a milder impact on the California economy.

California’s employment picture remains volatile. The nation’s nonfarm payrolls now exceed pre-pandemic levels in February 2020 by 31,000 jobs, although many of the new jobs are in sectors other than those where job losses have been most acute. Specifically, about 170,000 payroll jobs in the leisure and hospitality and other services sectors did not return.

Rapid job creation in the logistics, technology and healthcare sectors more than offset these losses. This partly explains why California’s GDP growth was faster than that of the US. Fast-growing sectors such as technology and logistics tend to be high-income sectors, while slow-growing sectors generally have low incomes.

Over the past three months, the picture has changed somewhat, with the three sectors of health care and social services, leisure and hospitality, and education showing the greatest job growth. And despite an increase in leisure and hospitality employment across the country, conditions remain difficult for the sector in the main employment hubs of San Francisco and Los Angeles. Current flex-work arrangements by California companies and a continued lack of Asian tourists coming to the state have resulted in an incomplete recovery in both cities. As none of these factors are likely to change in the coming months, the recovery is expected to remain on a shallow trend.

The gain in education is partly a result of schools reopening after closing during the pandemic. The number of employees in education has now returned to pre-pandemic levels, and no major additional increases are expected.

Higher interest rates have caused housing markets in California to fall. The median price of single-family houses in the country decreased seasonally. In October 2022, the average price was 8.4% below its previous peak, but returned to the level of early 2021. Still, California housing is not overbuilt. An increase in accessory housing construction as well as new infrastructure and continued growth in industrial space construction will protect the country from the sharper contraction in interest rates expected in the rest of the country.

With job growth in green tech, medical tech, aerospace and construction boosted by the infrastructure and defense budgets and a healthy Sacramento rainy day fund, the 2023 forecast for California is a more moderate slowdown or, in the case of a recession, a milder decline as in the US in general.

Discussions of Frcrypto, central banking and digital currencies

In addition to US and California forecast presentations, the December 2022 Forecast conference will feature a discussion on central banking and digital currencies, as well as an expert panel on the future of cryptocurrencies.

UCLA’s Anderson Forecast is one of the most watched and often cited economic outlooks for California and the nation, and was unique in predicting both the severity of California’s early 1990s recession and the strength of the state’s recovery since 1993. The forecast was recognized as the first major U.S. economic group to forecasting, which declared a recession in 2001, and in March 2020 was the first to declare that the recession caused by the COVID-19 pandemic has already begun.

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