Monday, March 16, 2020
Virus Forecast Revised to Recession
UCLA Anderson Forecast announces arrival of 2020 recession in revision of earlier forecast
March 16, 2020
Revising a forecast published March 12, UCLA Anderson Forecast economists say the U.S. economy has entered a recession, ending the expansion that began in July 2009.
The revised forecast, which incorporates data reflecting a rapidly changing U.S. economy, together with a review of the 1957–58 H2N2 influenza pandemic, is for the recession to continue through the end of September.
This marks the first time in its 68-year history that the UCLA Anderson Forecast has published an updated forecast between its regularly scheduled quarterly releases.
After the economy had experienced a solid start to 2020, the escalating effects of the coronavirus pandemic in March have reduced the first-quarter 2020 forecast of GDP growth to 0.4%. GDP for the second quarter of the year is now forecast to slow by 6.5%, and by 1.9% for the third quarter. With the assumption of an end to the pandemic and repaired supply chains by this summer, the Forecast predicts the resumption of normal activity in the fourth quarter of 2020 and a GDP growth rate of 4.0%.
For the full 2020 year, it is expected that GDP will have declined by 0.4%. In 2021, with the abatement of governmental pandemic expenditures and the continued contraction of residential and commercial construction, the economy is forecast to grow at 1.5%. The full recovery and return to trend is now expected in 2022.
Recession expected to be more severe in California than for nation overall
For California, a state with a larger proportion of economic activity in tourism and trans-Pacific transportation, the economic downturn will be slightly more severe. Employment is expected to contract by 0.7% in 2020 with employment contracting during the second and third quarters at an annual rate of 2.6%. The state's unemployment rate will rise to 6.3% by the end of this year and is expected to continue to increase into 2021 with an average for 2021 of 6.6%. By the first quarter of 2021, California is expected to lose more than 280,000 payroll jobs with more than one-third of those in the leisure and hospitality and transportation and warehousing sectors.
The revised forecast comes with an important caveat. If the pandemic is much worse than assumed, this forecast will be too optimistic. If the pandemic abates quickly because of the extraordinary measures being put into place to address it, an outcome that the medical community thinks unlikely but possible, then the forecast will be too pessimistic and economic growth in the third and fourth quarters of the year will be higher.