U.S. economy to see modest growth but high unemployment
www.chinaview.cn 2009-12-10 17:24:00
LOS ANGELES, Dec. 9 (Xinhua) -- The U.S. economy is on a "modest growth path that will be accompanied by extraordinarily high rates of unemployment," according to the University of California, Los Angeles (UCLA) Anderson Forecast released Wednesday.
The UCLA Anderson Forecast is one of the most widely watched and often-cited economic outlooks for California and the United States.
The Forecast says this slow growth reflects the lagged effects of the implosion of consumer balance sheets and is a result of the transition from an import-oriented, low-savings economy to a more export-oriented, higher-savings one.
Fueling the transition is the Obama administration's "weak dollar policy," which encourages exports and discourages the consumption of imports, the Forecast says.
The combined effect will cause real consumer spending to grow at a modest 2 percent rate, far below the historical 3-3.5 percent rate, the Forecast predicts.
UCLA Anderson Forecast senior economist David Shulman noted in a report titled "Lost and Found" that the recession established postwar records for declines in stock prices, home prices and employment and that, over the past decade, the unemployment rate had more than doubled while real wages rose by a modest 6.5 percent.
There were now a half-million fewer people on the non-farm payroll than there were 10 years ago, said Shulman.
With most of the recession's damage done, Shulman predicts slow growth for the U.S. economy.
He forecasts that, after growing at a rate of 2.8 percent in the most recent quarter, real gross domestic product in the United States will settle into a 2 percent growth rate for 2010 before rising to about 3 percent in 2011.
The unemployment rate will likely peak at 10.5 percent in the first quarter of 2010, then settle at or above 10 percent for the rest of the year, according to Shulman.
"We hypothesize that one reason for the high rate of unemployment is that business firms who hitherto viewed office overhead costs as fixed now view them as variable," said Shulman.
"Where in prior recessions much of the marketing, finance, research and administrative employees were generally immune from layoffs, the new management regimes have made those functions vulnerable to severe cutbacks," he added.
Shulman also noted in his report that government policymakers were "highly medicating" the economy with record federal deficits and a zero interest-rate policy from the Federal Reserve. While necessary to avoid an economic free-fall, Shulman asserts that these policies are not sustainable in the long run.
UCLA Anderson Forecast director Edward Leamer examined past economic recoveries and attempted to forecast how the current recovery would play out.
Leamer said that, unlike in the past, consumers, who had "already spent income we are never going to earn" and who were now more focused on savings, could not be counted on to spend the economy into recovery.
In his opinion, U.S. exports are the potential driver of a successful economic recovery. He even metaphorically suggests that "we will need to turn our shopping malls into factories."
For California, UCLA Anderson Forecast senior economist Jerry Nickelsburg said the outlook for the rest of the year involved little or no growth.
He said the golden state's economy would begin to pick up slightly in the beginning of 2011 and, by the middle of 2011, begin to grow at more normal levels.
Nickelsburg said the keys to California's recovery were exports of manufactured and agricultural goods, increased public works construction, and increased investment in business equipment and software.
The Forecast predicts total employment in the state will contract by 4.3 percent in 2009 and that no new jobs will be generated in 2010.
Unemployment will get worse, rising to 12.7 percent in the fourth quarter of 2009, according to the Forecast.
But once growth returns in 2011, employment will begin to grow faster than the labor force, at a 1.7-percent rate, and the unemployment rate will begin to fall, but the economy will not be generating enough jobs to drive the unemployment rate below double digits until 2012, according to the Forecast.
Real personal income growth will be a negative 2.7 percent in 2009 before returning to positive growth of 0.4 percent in 2010 and 2.8 percent in 2011, according to Shulman.
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