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California’s economy will continue to grow faster than the United States as a whole in the coming months, but not as fast as usual thanks to a variety of domestic and international influences, according to a UCLA Anderson Forecast released Wednesday.
In his report on California, UCLA Anderson Forecast Director Jerry Nickelsburg wrote that fears of a recession have faded dramatically, but uncertainty about economic growth in the state remains, thanks largely to military activity overseas and “greater geopolitical risk.”
“The risks to the forecast are political, geopolitical and the potential for interest rates to still disrupt the current expansion on the downside and increased international immigration and accelerated onshoring of technical manufacturing on the upside,” Nickelsburg wrote.
Overall, he wrote, a slower-growing U.S. economy will result in a slower-growing California economy. He said there is some indication that there will be “small but positive” growth in employment during the fourth quarter of this year and early quarters of next year, but “the data signals are mixed.”
“California’s labor force has declined of late and the unemployment rate has been inching up,” he wrote. “While we still see tailwinds in the data, they have moved from relatively strong to a very mild breeze. As such, there is less confidence in California outperforming the U.S. in 2024 than three months ago.”
According to Nickelsburg’s report, the state’s unemployment rate for the fourth quarter of the year is expected to average 4.7%, then average 4.5% and 3.8%, respectively, in 2024 and 2025.
“Our forecast for 2024 and 2025 is for total employment growth rates to be 0.3% and 0.9%,” Nickelsburg wrote. “Non-farm payroll jobs are expected to grow at a 1.8% and 1.7% rate during the same two years. Real personal income is forecast to grow by 1.7% in 2024 and 2.7% in 2025.”
Turning to the national picture, Nickelsburg wrote that fears of a U.S. recession have dramatically faded “in the face of expansionary fiscal policy, new national industrial policy and a consumer who is happy to continue spending.”
“Nevertheless, the impact of higher interest rates will be felt in restraining growth in 2024,” he wrote. “As inflation slowly works its way back to the neighborhood of 3% per annum and is being kept high due primarily to residential rents, automobile repair and new health insurance premia, we expect Fed policy to take a neutral stance and economic growth to rebound to trend rates.”
He warned, however, that there still remain risks, including the continued possibility of a government shutdown next year.
“Will geopolitical events upset the current growth pattern?” he wrote. “Will the election result in different national economic policies in 2025? These risks are substantial and bear watching as they could well drive the economy off its current growth path.”
