Employment and payrolls will continue to grow in California over the next three years, but events unfolding on the national political stage continue to present risks to the state’s economic outlook, according to a report released Wednesday by the UCLA Anderson Forecast.
The report by Anderson Forecast Director Jerry Nickelsburg noted that the state’s economy has been unfolding pretty much as expected over the past few months, but several factors could shake things up in coming months — including the renegotiation of the North American Free Trade Agreement and the “on-again/off-again tariff plans playing out between the U.S. and China.”
“The risks to the forecast remain elevated,” Nickelsburg wrote. “The increase in the federal deficit will put pressure on the international trade deficit. That increases the likelihood of trade actions that would depress California’s logistics and export industries.”
Uncertainty on the state’s housing front could also impact the economic outlook, Nickelsburg wrote.
“The third important risk is the assumption in our forecast that state and local governments will continue to facilitate more home building in an effort to mitigate California’s housing shortage,” he wrote. “If this were to abate in 2019 or 2020, the forecast would be too optimistic.”
Nickelsburg’s forecast calls for employment growth of 1.7 percent, 1.8 percent and 0.8 percent, respectively, in 2018, 2019 and 2020, with payrolls growing at about the same rate. He estimates homebuilding to accelerate to 140,000 units per year by the end of 2020.
In a report focused on housing, Nickelsburg notes that housing in the state will continue be less affordable than elsewhere through 2020.
“In spite of the efforts to increase the stock of housing, the elastic demand for California housing will make these efforts successful only in the long run,” he wrote.
On the national front, Anderson Forecast senior economist David Shulman wrote in his report that the era of “ultra-low interest rates” is coming to an end, with rates in the process of normalizing.
“High fiscal deficits and the Fed’s quantitative tightening policy will put upward pressure on interest rates,” Schulman wrote. “Meantime, the economy, spurred by strong business investment, should grow 3 percent this year.
“However, growth will slow as the economy bumps against its full employment ceiling and high interest rates work to slow housing in late 2019 and 2020,” he wrote.
But he noted the major risks to the economic forecast — “the potential for a trade war to break out with one or more of our major trading partners and for the uncertainty around Italian politics to broaden into a full- blown Euro-area crisis,” a reference to discussions surrounding Italy’s possible departure from the European Union.