Forecast Says California Growth Will Remain Sluggish

Not making the kind of money you expected?

You are in good company. California’s economy is falling behind “where it should be” according to an analysis released today by the University of California, Los Angeles’ Anderson School of Management.

The economic research center issued a report Wednesday looking into the future of the economy, both in California and the nation as a whole. It forecast growth in the gross domestic product (GDP) at 2.4% by the end of 2013, increasing to 3.4% in 2014. And it pegged the unemployment rate for California at 7.7% by the end of 2014.

In other words, “the forecast is more of the same,” Anderson Director Edward Leamer told KQED’s Peter Jon Shuler.

Here is an edited version of that interview:

PETER JON SHULER: How much growth is the right amount?

EDWARD LEAMER: The job growth is not keeping up even with the normal population growth in the US economy. So we are falling back a little bit.

PETER JON SHULER: Why isn’t the economy picking up more steam?

EDWARD LEAMER: We are experiencing a transition from an industrial to postindustrial economy. In an industrial age the assets that grew the economy that created wealth were the factories. In a postindustrial age its intellectual achievement. That stuff is created in our classrooms. And we don’t do so well as a nation with regard to that. We have had shortcoming in our education system masked by two bubbles, first the internet bubble and more recently the housing bubble. But now there is no bubble that’s going to save us. The result is that there is a large number of workers who have been permanently displaced from their jobs, and those workers are not going to be hired back because their work is being done by equipment, often personal computers, microprocessors, and they need to find skills so they can be employed again.

PETER JON SHULER: How does California fit into that picture?

EDWARD LEAMER: California is a great example of a transition from an industrial to a postindustrial  economy, because California, were it successful, is all about intellectual activities. So along the coast, where we have had the tech sector, particularly in the Bay Area but also here in the Southland, the economy is relatively strong. But as we move inland the economy gets a lot weaker. That has to do with the fact that the inland counties have historically been more about homebuilding than they have about intellectual services. And they as a consequence lag behind a little bit the Western Counties.

PETER JON SHULER: According to your report, the housing market has bottomed out.

EDWARD LEAMER: We think that housing construction is going to turn around this year or next year here in California. So there will be an improvement, but it’s going to be more multi-family, and it’s going to be more in the western counties than in the eastern counties. And it’s not going to employ all those construction workers who were employed at the peak of the housing market. That reality has a severe impact on our eastern counties where so much construction was going on. It’s not going to recur any time soon. So we have to either figure out how to bring jobs to those counties or put up with slow depopulation of those counties as those workers leave to find jobs elsewhere.