Job growth in California will likely outpace the nation as a whole next year, but growth of the state’s economy is expected to slow through 2020, a UCLA economic forecast that raises fears about the effects of U.S. trade policies said Wednesday.
Economist Jerry Nickelsburg, director of the UCLA Anderson Forecast, notes in his report on California’s outlook that recent adjustments to the North American Free Trade Agreement with Mexico and Canada will generally have “little effect” on California or the United States since it focuses primarily on the auto industry.
But he said the amended deal still needs to be approved by the legislative branches of all three countries.
“If the new agreement is not approved by the U.S. Congress, the potential still exists for the Trump administration to follow through on threats to end NAFTA altogether,” Nickelsburg wrote. “Therefore, this remains a forecast risk.”
He said the threat of a trade war with China is a far greater risk.
“On the one hand, President (Donald) Trump has vowed to increase tariffs on Chinese goods to 25 percent and on the other there seems to be a willingness to postpone the imposition of tariffs in hopes of obtaining a modest deal in the coming months,” Nickelsburg wrote. “Our forecast is consistent with the latter. Nevertheless, this is a risk that we will keep an eye out for as it has the potential to derail the forecast.”
Nickelsburg predicted employment growth of 1.4 percent next year and 0.7 percent in 2020, with personal income growth rising by 3.7 percent and 4 percent, respectively.
“Homebuilding will accelerate to about 140,000 units per year by the end of the forecast horizon 2020 in spite of higher interest rates,” he wrote. “This will be a response to easing zoning and regulatory requirements for developers and a continued strong demand for housing in the state.”
On the national front, Anderson Forecast senior economist David Shulman wrote in his report that the country is in for a reduction in real GDP, slipping from 3 percent this year to 2 percent next year and 1 percent in 2020.
“At full employment, 3 percent growth is not sustainable,” he wrote. “With the Fed tightening, trade tensions rising, the impact of the fiscal stimulus coming from tax cuts and spending increase waning, financial markets will likely experience increased turbulence. Over-leverage in the corporate sector represents the major financial risk to the economy.
“Nevertheless, Main Street will likely experience higher real wages coming from a very tight labor market, as evidenced by a 3.5 percent unemployment rate. Thus, a good year for Main Street and choppy year for Wall Street.”