California’s economy will continue to grow in the coming years but the pace is expected to slow alongside a slowing economy on the national level, according to the UCLA Anderson Forecast, which was released on Sept. 26.
Economic growth at the state and national level are expected to weaken in 2020, according to UCLA Anderson Forecast Director Jerry Nickelsburg. But California ‘s growth is expected to continue to outpace the U.S.
Progress made in the effort to renew the North American Free Trade Agreement – including an agreement reached with Mexico and ongoing negotiations with Canada – is expected to have little impact on the national and state economy, according to the forecast. However, the escalating tariffs between China and the U.S. threaten to impact the fast-growing logistics industry. The tariffs could also reduce trade between the U.S. and China and cause a “reallocation of resources away from trading sectors in both countries,” according to the forecast.
The impact of the administration's trade policies on business investment is unknown, but David Shulman, UCLA Anderson Forecast senior economist, predicts that “the trade deficit is going to explode."
"What the administration doesn't understand is that the trade deficit is largely a result of macroeconomic policies caused by the lack of domestic savings and the ever-growing budget deficit," he wrote in the forecast.
In the near term, California’s payrolls are expected to grow by 1.7 percent in 2018 and 1.8 percent in 2019, then scale back to 0.8 percent in 2020. Real personal income growth is anticipated to follow a similar trajectory, growing by 2.5 percent in 2018, 3.6 percent in 2019 and 2.9 percent in 2020. The forecast also anticipates acceleration in home building to about 140,000 units per year by the end of the 2020.
California’s position as a tech innovator will remain strong, according to the forecast. Los Angeles has the largest workforce, employing about 446,000 people in the tech sector as of July, compared with Silicon Valley's 346,000 jobs and San Francisco's 268,000 jobs during the same period. UCLA Anderson Forecast Economist William Yu predicts tech jobs in Los Angeles to grow by 2 percent in the coming year.
However, when it comes to investments in tech startups, Los Angeles is in third place statewide behind San Francisco and Silicon Valley, according to the forecast, which found that Los Angeles saw 307 funding deals in 2017 totaling $9 billion, while San Francisco had 909 deals funded, totally $22.2 billion, and Silicon Valley had 643 funding deals totaling $18.3 billion during the same period.
The forecast anticipates the national economy to similarly start to see slowing growth in 2019 and 2019 as a result of low unemployment and the end of the Trump administration's stimulus policies. The inflation rate is expected to rise and the Federal Reserve is expected to continue to raise interest rates.
The current national economy is bolstered by strong consumer spending, which grew from 0.5 percent in the first quarter of this year to 3.7 percent in the second quarter and is poised to grow at a 2.5 percent pace in the second half of the year. Equipment spending increased in 2017 and is expected to continue this year. Defense spending is also on the upswing, increasing 3.7 percent this year and forecast to increase 4.7 percent next year, before tapering down to a 0.7 percent increase in 2020.
Housing remains below average, with housing starts forecast at about 1.35 million units in 2019, falling below the 1.5 million unit annual average
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