UCLA Anderson Forecast Predicts ``Meaningful Downturn'' in the National Economy Due to Higher Interest Rates, Weakness in the Housing Sector; California Economy to Experience Job Losses as State's Real Estate Sector Cools

Business Wire, March 29, 2006

LOS ANGELES -- No Recession Forecasted for the U.S. or California

In its first quarterly report of 2006, the UCLA Anderson Forecast states, "a meaningful slowdown for the U.S. economy is in the offing for late 2006 and early 2007," despite strong near-term economic growth. Likening conditions to such mid-cycle slowdowns as 1985-86 and 1994-95, the Forecast sees sub par growth, but does not predict a recession. In California, a softening of the still-hot housing market will contribute to an overall slowdown in the State's economy, while improving sectors of the economy unrelated to housing and construction buoy the overall Forecast.

The National Forecast

UCLA Anderson Forecast Senior Economist David Shulman calls for real GDP growth of 3.2%, 2.4%, and 3.2% in 2006, 2007 and 2008, respectively. The primary risk, he writes, "...is that the slowdown we envision turns into something worse."

The report titled "Too Complacent," makes the case for an economic slowdown in the U.S. economy. Shulman argues that higher short- and long-term interest rates, an approximately flat yield curve that bounces between being positively sloped and inverted, significant weakness in the housing sector and the continued pressure of higher energy prices on consumer spending all contribute to overall weakness in the economy. Part of the weakness, he concludes, will be offset by strong capital spending and a leveling off in the decline of net exports.

The California Forecast

The California Forecast, authored by Senior Economist Christopher Thornberg, continues to warn of a slowdown in the housing market and says, "The only debate now is how hard a landing there will be and what will it mean for the general economy." One impact, Thornberg forecasts, is that 200,000 jobs will likely be lost in the construction sector as residential construction and remodeling slow markedly. Thornberg forecasts the unemployment rate will reflect a mild rise from 5.6% in 2006 Q4 to 6.3% and 6.2% in 2007 Q4 and 2008 Q4.

On the positive side, the report says that jobs in professional services are growing and even though the manufacturing sector is not adding many jobs, output continues to rise. While the cooling housing market certainly has a significant downside, it is actually beneficial for export-oriented California.

About UCLA Anderson Forecast

UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the nation, and was unique in predicting both the seriousness of the early-1990s downturn in California, and the strength of the state's rebound since 1993. Most recently, the Forecast is credited as the first major U.S. economic forecasting group to declare the recession of 2001. Visit UCLA Anderson Forecast on the Web at http://uclaforecast.com.