California's economy will slow next year, led by a downturn in real estate and construction jobs, but there is little chance of a recession, according to the quarterly economic forecast released Wednesday by UCLA's Anderson School of Management.
The Anderson forecast says non-farm payroll job growth the traditional measure of economic performance will slow to 1.1 percent in 2006 from an estimated 1.6 percent this year. Likewise, civilian employment, which tracks people in households who are working, will also see a slowdown next year, to 1.7 percent growth from 2.4 percent growth.
The main factor behind the slowdown will be the real estate market. According to the study, construction jobs, which grew at a robust 6.3 percent clip in 2005's booming real estate market, will slow to just 0.2 percent growth in 2006 in essence, flat performance.
"It looks like we'll see a soft landing for the real estate market next year not the crash we saw in the early 1990s," said Ryan Ratcliff, senior economist with the UCLA Anderson Forecast. "But there isn't any other sector that looks particularly vulnerable, so we think the California economy will avoid a recession."
However, Ratcliff said there are some wild cards that could lead to recession: a greater-than-expected slowdown in defense spending and a plunge in the housing market chief among them. Besides affecting construction employment, a drop-off in real estate activity could spill over into the financial sector, especially in the ranks of mortgage brokers and real estate agents.
Ratcliffe said another sector that bears watching is information, especially the entertainment industry. Employment in the industry fluctuated wildly in 2005, accounting for much of the statewide job growth early in the year and the sluggish job performance in the second half.
The UCLA forecast pegs personal income growth in 2006 at 5.2 percent, down from 6.2 percent in 2005 and 7.2 percent in 2004, but still good news for state budget planners. Not so good: personal income is only projected to grow at 2.6 percent when inflation is factored in, meaning workers will not have that much more money to spend.
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