What’s the future of California’s economy? Here’s what new forecast says

California’s economy should perform better than the nation’s in the months and years ahead, a new UCLA Anderson state forecast said Wednesday.

While the national and state economies have been growing, economists have feared for months that both will slide into a downturn, a recession that would mean fewer jobs.

But there’s uncertainty around that prospect. So UCLA in its semi-annual forecast offered two scenarios — recession and no recession.

If there’s no recession, “California grows, and in fact continues to grow faster than the U.S., led by more construction, an ample rainy-day fund for state government, increased demand for defense goods, and increased demand for labor saving equipment and software,” the forecast said.

If a recession hits, “the California economy declines, but by less than the U.S.,” the forecast says.

The state’s unemployment rate in April, the latest figure available, was 4.5%, with 18.5 million working and 867,500 unemployed.

If there’s no recession, the rate should average 4% in 2024 and 2025. The national figure, 3.7% last month, would be 4% next year and 4.2% in 2025.

Prices could go up 3.1% in California next year and 2.3% in 2025. Nationally, they’d climb 3% next year and 2.1% in 2025.

If there is a recession, the rate would increase slightly to 4.8% next year and 4.6% in 2025. The national figure would be slightly less.

The forecast predicts prices up 2.7% in 2024 and 2.5% in 2025 nationwide. In California, it sees prices up 2.8% next year and 2.7% in 2025.

Californians themselves appear to be less sanguine about their economic future than the scholars at UCLA. A new survey from the Public Policy Institute of California shows early 60% of residents believe that the state has entered into an economic recession, with six in 10 adults saying they’ve experienced hardships due to rising prices.

California optimism

The UCLA forecast sees California with several advantages.

One involves leisure and hospitality jobs, which have barely come back to the pre-COVID pandemic levels of three years ago.

Many of the unfilled positions are in the Bay Area and Los Angeles. “This is due in part to remote work keeping the demand for restaurant and tavern services in these cities below pre-pandemic levels, and in part due to the absence of foreign, particularly Chinese, tourists in the state,” the forecast said.

It was optimistic because as people return to the office, some of those jobs will return. And in China, the end of zero-tolerance COVID policies should mean more Chinese tourists.

“This increase in tourism will disproportionately affect California, New York and Nevada and will moderate any impact of a slowing economy relative to the average for the nation,” UCLA said.

Other encouraging factors involve housing and supply chains.

While people are still expected to leave the state to find less expensive housing, the pace should slow, as housing costs rise in areas such as Austin, Salt Lake City, Boise and other popular destinations.

Also likely to improve is the economic situation at the state’s airports and seaports.

New data suggest a “bottoming out” of goods movement, though the forecast did warn “It is too early to declare a trend.”

The crucial player in any economic scenario is the Federal Reserve, which has raised its key interest rate 10 times in the last 14 months in an effort to ease inflation.

The increase in the cost of living has dropped from a 9.1% annualized rate a year ago to 4.9% in April, which is still above the Fed’s goal. California’s rate peaked last year at 8.3%.

Economists are uncertain if the Fed will pause implementing any more increase; it’s scheduled to meet next week.

UCLA’s forecast put it like this: “For the past six months, uncertainty about California’s 2023 economic outlook has been elevated. The most important source of this uncertainty is national economic policy.”