Slower growth, but no recession for California in 2007.

That's the word from the quarterly UCLA Anderson Forecast was released Thursday morning. The forecast says the housing market will continue to weaken and act as a drag on the economy in 2007, but that is not expected to be enough to prompt a recession unless something else intervenes.

The Anderson report predicts 2007 nonfarm job growth in California to be a modest 0.5 percent, off from a projected 1.5 percent rate for 2006 and 1.8 percent for 2005. The unemployment rate, after hitting a cyclical low of 4.7 percent for 2006, should climb slightly to 5.0 percent, the forecast states.

Anderson economist Ryan Ratcliffe pointed to three areas of concern beyond the housing market, any one of which could alter the basic outlook for next year. One is the extent of the negative "wealth effect" from housing price drops whether homeowners will really feel poorer and decide to cut back sharply on general spending, which has been the major driver of economic growth in recent years.

Another factor could be fallout from a budget shock in Sacramento as slowdowns in property tax growth and personal income taxes turn surpluses into deficits. The forecast concludes that there is likely to be enough wiggle room in the state budget picture so as not to have to cut back sharply on state workers or services.

But Ratcliffe said that no other sector in the local economy appears poised to take up the slack should the weakness in the housing and construction markets be more severe than anticipated.

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