A soft landing, or a mild recession? – Daily News

The latest UCLA Anderson forecast for California offers two possible scenarios for the California economy — a soft landing due to factors such as more construction and increased demand for defense goods, or a mild recession with elevated unemployment rates.

The biggest source of uncertainty is linked to national economic policy.

“In the coming months, the Federal Reserve will reach that fork in the road between continued aggressive tightening and moderation,” the study said, “and must decide which path to take.”

The good news?

In contrast to the past four slowdowns in economic growth, UCLA predicts a milder impact on the Golden State’s economy than the Federal Reserve determines.

The study notes that California’s non-farm employment base has now surpassed the pre-pandemic level of February 2020 by 31,000 jobs. But many of the new jobs are in sectors where job losses were most severe.

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About 170,000 payroll jobs in the leisure and hospitality and other service sectors did not return, the report said, but faster gains in logistics, technology and healthcare made up for those losses.

Recent layoffs at tech giants like Twitter, Google and Salesforce will clearly skew the numbers in the technology sector, but that data is not yet reflected in UCLA’s report.

Soft landing

In the soft landing scenario, California’s economy continues to grow faster than the nation with unemployment rates averaging 4.3%, 4%, and 4.4% for 2022, 2023, and 2024, respectively.

Under that scenario, total employment growth is expected to be 5.1% in 2022, 1.1% for 2023 and 1.2% for 2024. It will increase the state’s non-farm workforce from 17.5 million this year to 18.2 million in 2024.

Despite high mortgage rates, continued demand for housing, along with laws allowing the construction of supportive housing units in neighborhoods zoned for single-family homes, leads to predictions of an increase in home construction through 2024.

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The soft-landing scenario projects that residential building permits in California will hit 121,400 this year and rise to 119,400 in 2023 and 141,900 in 2024.

A recessionary scenario

In a recession, California’s economy shrinks, but less than the nation’s GDP. The state’s unemployment rate is expected to average 4.3% this year, 4.4% in 2023 and 4.5% in 2024.

Employment growth will be 5.1% this year, 0.5% in 2023 and 0.5% for 2024. That California nonfarm workforce will increase from 17.5 million in 2022 to 17.7 million in 2024.

Under this weak economic projection, residential building permits in California will total 120,500 this year, 115,700 in 2023 and 134,500 in 2024.

Additional factors to consider are:

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“In the last California report we documented a slowdown in the movement of goods through the state’s ports and airports,” the report said. “The new data does not change the picture. Growth in goods movement has slowed down.”

The study links to the fact that trans-Pacific shipping has been diverted to East Coast ports as a hedge against possible labor action at West Coast ports, as well as households shifting from purchasing goods back to consuming services.

However, imports, while lower, are still above pre-pandemic levels.

As West Coast port and national railroad labor issues are resolved, the volume of processed imports should return to slower growth, resulting in an overall increase in freight movement, the report said. But the end of the pandemic rush to buy imported merchandise will reduce the movement of goods.

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