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Plunging prices, soaring foreclosures, mortgage and finance issues and slowing imports in the state are “taking their toll,” conclude the economists at the UCLA Anderson Forecast in their newest report released today.
The forecast lists late 2009 as a starting point for a recovery in construction and finance. But because the impact to state and local budgets lag those industries, this “new drag on the state economy (will) arrive after the drag of the housing market is played out,” wrote economist Jerry Nickelsburg.
Consequently, we can expect doldrums to be the operative word describing the California economy over the next 18 to 24 months. The risk in the forecast comes from the finance sector. If the housing market continues to decline due to a lack of funding for new mortgages, then weakness in housing extends into the period of weakness in consumer durables and state and local government.
The economists stop short of predicting a recession for the nation or the state. Edward Leamer, director of the Anderson Forecast, summed up the state of the national economy with this:
The low rates of interest, the innovations in the financial markets and the tax cuts have turned us into a consumption-loving debt-ridden foreign depending society.
The slaps in the face each time we fill up our SUVs are carrying the rude message: things have to change. You cannot maintain that profligate life style. The structural adjustment that lies ahead seem certain to come with unbalanced sluggish growth and weak labor markets for a considerable period of time. Misery, but no recession.
The tightening in finance bodes poorly for not just individual borrowers but for businesses, as well. Without financing for projects, some companies have undergone massive layoffs, adding to the state’s dismal economic picture and shooting the unemployment rate past 7 percent.