As they were in 2008, this year’s economic indicators have so far been dismal: record unemployment levels, massive statewide budget cuts, failing banks and falling stocks.
But after nearly two years of decline, the economy may at last be bouncing back, according to the latest publication of the UCLA Anderson Forecast, which is compiled quarterly by a team of economists at the UCLA Anderson School of Management.
“We started seeing inklings of the end of the recession in March, and it’s now likely that the recession has ended,” said forecast director Edward Leamer.
The new forecast is predicting a growth of 2.3 percent in gross domestic product in the current quarter and continued growth throughout 2010.
Still, the forecast warned that tough times lie ahead.
“Although the worst recession in seven decades likely ended in the current quarter, its negative effects will linger well into the next decade,” according to the forecast.
Unemployment figures, which traditionally lag behind other measures of economic recovery, are expected to remain fairly stagnant through 2010 and will only begin to decrease in 2011.
“Overall, the job markets are going to be weak this year, although there will be some sectors growing faster than others,” said Jerry Nickelsburg, a senior economist for the Anderson Forecast. “It will be a challenging year for college grads.”
Because the recession was largely brought on by excessive spending and unsustainable debts, consumers will not be as inclined to borrow and spend money in the coming years, Leamer said.
Leamer criticized the federal government’s attempt to stimulate economic recovery by increasing spending, a policy he said could ultimately slow recovery.
“The economy is a self-healing system. It’s very hard to know whether the medicine does the healing or whether it would heal without it,” he said. “I’m inclined to think fiscal policy didn’t matter much.”
The forecast warned that current spending by the government would cost Americans in the long run.
“The arithmetic is simple. … (Take) $9 trillion in debt and assume a 4 percent interest rate, interest costs skyrocket to $800 billion a year,” the forecast stated.
This money will either have to be paid back by increasing taxes or by cutting spending, Leamer said.
Nickelsburg said government intervention in the financial sector was necessary, but the way in which the White House intervened only made the recession worse.
“The federal government decided to use fear as a tactic to get things done,” Nickelsburg said. “They went to Capitol Hill like Paul Revere, saying, “˜The depression is coming!’ The depression wasn’t coming.”
This tactic caused consumers to fear for their job safety, and many cut back on consumption to save up in case of future unemployment, Nickelsburg said.
California’s economy, at least, looks to be picking up in the short term, according to the forecast.
The statewide housing market is improving, and an increased demand for exports has been a boon to trade and manufacturing. Consumer confidence may also be returning, if slowly, according to the forecast.
“We are slightly more optimistic now than we were a year ago,” Nickelsburg said. “We’re expecting slow growth out of this recession.”
The UCLA Anderson Forecast, founded in 1952, is a quarterly forecast of the state and national economies.