Though the housing market has entered a state of major cyclical
decline nationwide, economists from the UCLA Anderson Forecast
concluded in their quarterly prediction that the economy is not
entering a recession, but rather a period of slow growth.
But David Shulman, senior economist for the UCLA Anderson
Forecast, said there could still be problems in the future.
“While the U.S. economy appears to have seamlessly
downshifted to a soft landing, we suspect that there will be
turbulence ahead,” he said.
Shulman said challenges the economy could face in the upcoming
quarters include increasing inflation, sluggish growth and a rise
in unemployment.
In response, the Federal Reserve will cut the federal funds
interest rate from 5.25 percent to 4.5 percent by June 2007,
Shulman said.
Historically, housing trends have played a significant role in
economic recessions, said Edward Leamer, director of the Anderson
Forecast.
According to Leamer, eight out of 10 of the country’s
housing slumps since World War II have led to economic
recessions.
“We look at housing slumps with concern because when
housing goes down, it is usually a warning sign that a recession
will begin soon,” Leamer said.
But speakers at the Anderson Forecast conference said that the
current housing slump may be an exception to this rule.
Though economists predicted that California’s real estate
sector will continue in the decline that started earlier this year,
they said other sectors will probably not experience similar
downturns.
Ryan Ratcliff, an economist with the Anderson Forecast, said the
fact that most sectors are expected to remain stable indicates the
economy is entering a slowdown rather than a full-blown
recession.
Because job loss is expected to be minimal, Anderson Forecast
economists predicted that the economic slump will be shallow, but
may take at least five years to overcome.
Ratcliff analyzed the current housing slump, comparing the
struggle between property owners and prospective buyers to a junior
high school dance.
“I picture the buyers and sellers lined up on opposite
sides of the room staring longingly at each other, but nobody is
dancing,” he said.