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Signs Of California's Market Peaking

Wednesday, September 28, 2005

BUSINESS NEWS -- UCLA economists today forecast a "mediocre" outlook for California, with "weak growth" over the next two years culminating in a "soft landing" -- but likely no recession.

California's economy "seems healthy on the surface," but there is no encouraging news to be found just beneath, according to economist Christopher Thornberg, who authored the California portion of the quarterly forecast issued by the UCLA Anderson School of Management.

"The forecast for California is mediocre at best; at worst we are liable to dip into another recession," Thornberg said.

Like the national economy, economic activity in California "is being driven in part by the housing sector and consumer spending, which is being fueled by the wealth home owners are feeling," according to the Anderson forecast.

"But while these sectors continue to fuel growth, core California sectors like information, manufacturing and professional services continue to languish."

Los Angeles will avoid a crash and experience a "soft landing" similar to the rest of California, according to the Anderson school.

"Any trouble in real estate markets is more than six months out, so our forecast is for a slowdown in housing in early 2006, leading to a broader economic slowdown in 2006-2007," UCLA Anderson Senior Economist Ryan Ratcliff wrote in discussing economic prospects for the Southland.

"At this time, there is not enough evidence from our leading indicators to suggest that this slowdown will become a full-blown recession."

In the national portion of the forecast, UCLA economists backed away from their previous prediction of "substantial declines in U.S. housing construction starting" late this year.

Senior economist Michael Bazdarich said housing construction has been flat, not in decline, as had been expected.

But while the drop-off in housing construction has yet to occur, declines in consumer and business spending is happening at a faster rate than had been expected three months ago, according to the Anderson business school.

On the plus side, U.S. foreign trade trends are showing signs of turning for the better, mitigating the economic drag caused by slowing spending growth.

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