Catching up with the UCLA Anderson Forecast

The UCLA Anderson Forecast met in a hybrid format last Wednesday and gave a generally positive outlook with uncertainty over the Ukraine war situation and its impact. The California outlook is reported below from a Forecast news release:

A number of sectors in the California economy are showing new growth, with the technology sector leading the way. But the state’s economy nevertheless has some weaknesses, according to UCLA Anderson Forecast director Jerry Nickelsburg, author of the California forecast. Sectors that require a high level of human contact in the sale of their services demonstrate the greatest disparity between the number of jobs before the pandemic and their current employment levels, he writes.

The leisure and hospitality sector, in particular, is suffering for two reasons. First, with many countries continuing with strict COVID-19–related restrictions, including long quarantine periods for returning travelers, California tourism, which is disproportionately dependent on international visitors, continues to lag its pre-pandemic level. Second, the pandemic created a work-from-home environment for many industries. Companies may, in fact, be growing their workforces, but if those workers are not in the office, then restaurants and other businesses dependent on employees’ gathering together in central locations will recover more slowly.

Nickelsburg’s report cites four sectors where job growth was strong in the latter part of 2021. Three of those sectors — technology, logistics and construction — are expected to be strong drivers of the California economy in both the short and long term. But the leisure and hospitality sector will remain a drag on economic growth.

Although leisure and hospitality and retail employment are not expected to return to their 2019 peaks by 2024 (the end of the current forecast’s horizon), Nickelsburg expects the California economy once again to grow faster than that of the U.S. as a whole. The risks to the California outlook are a new virulent wave of the pandemic and an acceleration of residents leaving the state on the downside, and increased international immigration and accelerated onshoring of technical manufacturing on the upside.

The state unemployment rate for the second quarter of 2022 is expected to be 5.7%, and the averages for 2022, 2023 and 2024 are forecast to be 5.5%, 4.5% and 4.3%, respectively. Non-farm payroll jobs are expected to grow at rates of 4.7%, 2.6% and 1.4% during the same three years. In spite of an expected increase in interest rates, the forecast predicts relatively rapid growth in home building. The expectation is for 123,000 net new units to be granted permits in 2022, climbing to 151,000 by 2024.

Source: https://www.anderson.ucla.edu/news-and-events/press-releases/ucla-anderson-forecast-russia-ukraine-war-adds-new-risks-us-and-california-economies.

As the Forecast charts below indicate, inflation was forecast to taper off, but it doesn't get down to its past 2+ percent pre-pandemic level until a year from now. Note that inflation has importance in terms of faculty and staff salaries in real terms and for the UC pension system which provides only partial adjustments for inflation over 2% per annum.