As 2023 draws to a close, the latest UCLA Anderson Forecast brings a cautiously optimistic outlook for the U.S. economy, with particular insights into California’s economic trajectory. Despite a backdrop of geopolitical uncertainties and inflationary pressures, the forecast suggests a diminished threat of an imminent recession, a scenario that mirrors economic patterns observed in the mid-1990s.
The forecast attributes the current economic resilience to several key factors: expansionary fiscal policies, the advent of a new national industrial policy, and robust consumer spending amidst overarching economic uncertainties. However, this growth trajectory is tempered by persistently high interest rates and a slow retreat of inflation rates.
Drawing parallels with the period between 1994 and 1996, when negative headlines belied underlying economic strengths, the forecast projects a similar trend for the present. In 2023, despite challenges such as the debt ceiling and labor disputes, economic indicators like retail sales and durable goods orders have remained strong, reflecting an underlying economic robustness.
Turning to California, the forecast indicates a slowdown in employment growth, albeit with the state continuing to outpace the national average. This deceleration is partly attributed to slower U.S. economic growth, a downturn in investments, and a slowdown in the logistics sector. Nevertheless, California is expected to maintain its relative economic dynamism, though the margin of its lead over the national average is narrowing.
Looking ahead, the UCLA Anderson Forecast does not anticipate a hike in the Federal Reserve’s interest rates for the remainder of the year. Inflation is expected to gradually decrease, with economic growth potentially rebounding to trend rates by the end of 2025. However, this optimistic outlook is not without its risks. Potential threats such as a government shutdown and external geopolitical events could disrupt the current growth trajectory. Furthermore, uncertainties surrounding the 2024 elections may dampen business investment and consumer spending, potentially steering the economy away from its projected path.
In a remarkable turn, the GDP growth for the third quarter of 2023 outstripped expectations, registering at 4.8 percent as opposed to the forecasted 2.3 percent. This surge is partly credited to inventory adjustments following a previous period of weak accumulation. Moving forward, the forecast anticipates a weaker performance in 2024, with an expected rebound in 2025.
In California, the housing market continues to show signs of resilience, buoyed by state policies encouraging new home construction. However, the forecast cautions that the housing affordability issue in the state is unlikely to be resolved within the next three years. Employment growth is expected to be modest, with the unemployment rate averaging 4.7 percent in the fourth quarter of 2023, and showing a gradual decrease in the subsequent years.
