What To Expect From California's Economy In 2020

Speaker 1: 00:00 As we start 2020, the stock market is on a high, unemployment is low and the economy is humming along. UCLA. Anderson forecast suggests that could slow through the new year, but California looks to be on track to slow less than the nation as a whole here to give us a highly educated guess about how our economy and finances might fare in the coming year is UCLA Anderson's forecast director Jerry Nichols Berg. Thanks for joining us, Jerry. My pleasure. So the, the Addison forecast, which is often cited, uh, has recently upgraded its predictions for 2020 and says that the growth will slow. It won't slow as much as you'd feared. Why did you upgrade your forecast? So there's two Speaker 2: 00:43 principle reasons why we did. Uh, the first is that the housing market, uh, nationwide has improved for quite a long time. The housing market has been in the doldrums, but we're now seeing an increase in residential construction nationwide. Uh, and we're seeing some here in California as well. The second is, uh, our view that the trade dispute with China was going to moderate and that we would have a phase one deal, a one that is very significant in and of itself, but would ease trades, trade tensions and rolled back some of the tariffs that, uh, both the U S and China have imposed. Uh, that actually looks like it's going to come to pass in just about 15 days. Uh, so the, for those two reasons, we think the economy's going to be a little bit stronger in 2020, uh, not a strong economy, but a little bit stronger than we had previously predicted. Speaker 1: 01:42 President Trump says he will sign the first phase of the U S China trade deal or January 15th, as you say. Um, how, how exactly explain to us how trade tensions with China affect Southern California specifically. Speaker 2: 01:54 So goods from China principally come through the ports of Southern California, and that affects our logistics industry. Our logistics industry is the part of the California economy that receives goods through our ports, moves them to warehouses, unpacks those big containers, uh, separates them and sends them off to their ultimate destination. And a lot of that is done in California. We are the gateway, uh, not just for China, but for goods from all over Asia coming into the United States. Speaker 1: 02:28 So how's building is, is it something that's on a lot of people's minds? Because we're learning that a not enough new housing is being built to really meet the demand. And in fact, a here in San Diego building permits were down again this year. So, you know, that's in spite of the fact that regulations have been softened and there've been all these incentives to build, but you say that housing appears to be stronger. How do we reconcile those two things? Speaker 2: 02:52 Sure. The fact that housing is strengthening in California doesn't mean that we're producing, uh, at any rate sufficient to meet the housing demand. And we're still seeing home prices climb in many parts of California. Uh, however, housing construction is at a higher rate than it was, uh, really over the last nine months. So we were down at about a hundred thousand homes in California per year. Uh, especially when you take out those that are rebuilding due to the, uh, tragedies that we've had with wildfires. And now we're up in about the 115,000. Speaker 1: 03:31 No, your report talks about a two track economy with consumer spending up, but business investment not up in spite of all the tax breaks last year, which were promised to spur business investment, is there anything to suggest that businesses might be more confident in 2020? Speaker 2: 03:47 Uh, we don't see much evidence of that. Certainly the tax breaks did not spur investment and there remains a lot of uncertainty with respect to the economy effect that we're going to have a phase one trade deal, uh, is encouraging. But that trade deal doesn't solve any of the problems that the Trump administration has said. Uh, the reason for the tariffs that we currently are experiencing in the trade war was China. So there's still a lot of uncertainty. We are late in the uh, in the expansion. And this is not a time when business in spite of low interest rates is that interested in engaging in lots of major new investment. Speaker 1: 04:35 And finally, the Anderson forecast accurately predicted the recession in the 1990s and the early two thousands. So let's talk about the odds of a recession. I know one of your colleagues and other UCLA economists recently predicted a 17% chance of a recession happening in 2020. That sounds pretty positive. Speaker 2: 04:53 Yeah, that's true. The risk of recession has elevated. However, if one looks at forecasting recessions, they're very hard to forecast and, and you have to get fairly close to the timing of a recession before you can forecast them. Because what it takes is some trigger to coordinate multiple sectors contracting at the same time. As we look at the data, right now though, we see signs that elevate our risk of a recession. We don't see any thing that would suggest that we're going to have a recession in the next six months. So it looks good going into 2020. We're expecting decent economic growth sub 2% for 2020 but, uh, just about 2% between one and a half and 2% and we expect California to grow a little bit faster than that. Speaker 1: 05:46 Well, thanks for that encouraging news there, Jerry. Speaker 2: 05:49 You're welcome. Speaker 1: 05:50 That was UCLA Anderson forecast director, Jerry Nichols Berg, who joined us on Skype.