UCLA Anderson Forecast still says no recession

Claiming that he's still holding onto a "shaky view," Ed Leamer, Director of the UCLA Anderson Forecast says California and the U.S. will still avoid a technical recession (two consecutive quarters of negative growth) but that it still won't be an enjoyable time. From an L.A. Times story:

Under pressure from falling home values, high oil prices and rising unemployment, the economy in California and the nation will perform anemically in the coming months -- but there still won't be an actual recession, UCLA forecasters say.

"I am holding on to what is now a shaky view: no recession this year," said economist Edward Leamer, director of the quarterly UCLA Anderson Forecast, which is being released today.

The predictions, however, call for somewhat more pain in the months ahead than previously forecast, with little improvement this year or next.

Not good, but not a recession, which is commonly defined as two consecutive quarters of negative growth in gross domestic product...

The drag on the economy from the buckling housing industry may become the most severe since the Great Depression, the report said. There will be little or no growth in gross domestic product this quarter, and GDP will probably slip into negative territory in future months before finishing next year with a tepid average improvement of 1.2%.

A key factor in favor of the economy, the forecast says, is that so far the pounding of the housing market has not badly damaged the job market.

In the 1990s, Southern California home values fell after many workers -- particularly in the aerospace and defense industries -- lost their jobs and couldn't keep up mortgage payments. Foreclosures peaked in 1997, when employment already had recovered, because many homeowners had struggled for months to hang on.

"This time, what happens in housing stays in housing," Leamer said, as many employers worried about the economy hold off on new hires but decline to cut staff.

Many homeowners are choosing to sell their houses at a loss and move -- not because they lost their jobs, he said, but because they owe their lenders more money than their houses are worth.

Bailing out makes financial sense to them. "The lenders have provided an option to walk away if things go bad -- you might as well exercise that option," Leamer said.

Distress sales will continue to wreak havoc on home valuations for the rest of the year, the forecasters said...

"The unprecedented speed of the price adjustment means that instead of several years of slow bleeding [like the 1990s] we have compressed the necessary adjustment into two years of intense housing pain," wrote UCLA economist Ryan Ratcliff. "Mom always said it's better just to rip the Band-Aid off."...

Has the U.S. avoided a recession?

According to a story in the Wall Street Journal, the recession that many economists said was inevitable has either taken a detour or been postponed:

A funny thing happened to the economy on its way to recession: It's taken a detour.

That, at least, is the view of a growing number of economists -- including some who not long ago were saying a recession was all but inevitable. They note that stock and credit markets have steadily improved since the Federal Reserve intervened to keep Bear Stearns Cos. from bankruptcy in early March, while a series of economic reports have been stronger than expected.

Economists also cite swift policy responses, including a sharp reduction in interest rates by the Fed -- to 2% from 5.25% last September -- and the distribution of fiscal-stimulus checks to millions of Americans, as factors possibly easing the downturn...

Wachovia now puts the odds of recession at 45%, down from 90% in April, and expects growth in gross domestic product of 0.6% at an annual rate in the first and second quarters of this year, followed by 1.2% growth in the third and fourth quarters. While he doesn't expect a recession, he says growth will be very weak through next year.

Indeed, plenty of economic warning signs remain, as reflected in plunging consumer confidence data and polls reflecting deep unease among voters. Rising prices for food and other commodities are prompting Americans to trim some spending and stoking concerns about inflation. The ongoing run-up in oil prices has pushed the average price of a gallon of gasoline to $3.73 as of Tuesday, according to AAA, the automobile group. Home prices continue to decline and many economists expect that to depress spending in the months ahead...

Job losses, meanwhile, have been less severe than they usually are in recessions. And many economists think the government's earliest estimate of first-quarter GDP growth -- 0.6% -- will be revised upward. After reviewing the retail-sales data, economists at Global Insight, a Waltham, Mass.-based forecasting firm, predicted the government would increase its assessment of GDP growth in the first quarter to 1% at an annual rate. They forecast continued growth in consumer spending, partly because of tax rebates and stimulus checks...

The question remains open, since recessions typically aren't officially diagnosed until some time after pain hits consumers. A common definition of a recession is at least two consecutive quarters of negative GDP. But the National Bureau of Economic Research -- the nonprofit group that is the official arbiter of when recessions begin and end -- defines a recession as a period of significant decline in economic activity across GDP, income, employment and retail sales that lasts more than a few months.

John Lonski, Moody's chief economist, said recent labor market data and signs the credit crunch is easing on Wall Street have made him less gloomy than he was a few months ago. In the latest WSJ.com survey of economists, conducted in May, he said the likelihood of a recession was 60% -- down from the 90% he predicted in the April survey...

Claims for unemployment benefits -- which typically rise well above 400,000 a week during recessions -- have stayed well below that level, and fell last week. In addition, the economy isn't shedding hundreds of thousands of jobs a month, as it usually does in an economic contraction. In April, employers cut just 20,000 jobs, and the unemployment rate fell.

Even Alan Greenspan, who in early April said the U.S. was in the "throes of recession" and is going through the "most wrenching" crisis since World War II, has more recently toned down the warnings, saying the U.S. is in an "awfully pale recession." George Soros, who has long argued the U.S. is headed for a major crisis, also recently remarked that the "acute phase" of the crisis has now passed.

To be sure, even economists who are becoming more upbeat say the U.S. may be in for a period of protracted sluggish growth...

"I think the problems are just starting," said Lehman Brothers economist Drew Matus, citing high gasoline prices and tightening lending standards, saying that prolonged stagnation can be worse than a recession.

Peering behind the U.S. economic curtain

Despite the seemingly good news that the U.S. has avoided a technical recession, there's actually a bit more to it than that. From a story by BusinessWeek's Peter Coy:

...the cut in the federal funds rate they announced on Apr. 30—a quarter-point, to 2%— probably won't be enough. Senior U.S. economist Paul Ashworth of London-based Capital Economics predicts the Fed will be forced to cut the funds rate to 1% by summer's end. The U.S. economy remains in dire need of aid, and the financial system, while no longer in flames as it seemed to be a couple months ago, is still smoldering. At the same time, inflation, aside from food and energy, is more a theoretical threat than a real one. Core prices rose just 2% from the first quarter of 2007 through the first quarter of 2008, going by the Fed's own favorite measure of inflation (the personal consumption expenditure deflator, excluding food and energy)...

In fact, though, the U.S. economy is weaker than is apparent from the 0.6% annual rate of growth in gross domestic product, which was reported before the Fed's statement. Much of the growth came from an accumulation of inventories—goods that were put on the shelf rather than sold. Final sales to domestic purchasers, which excludes inventory accumulation, actually fell 0.4%. It was the first such decline since 1991.

Indeed, the U.S. may well be in a recession despite the positive GDP report. First-quarter growth could be revised downward as more data come in. Even if the GDP news doesn't get worse, the business-cycle arbiters of the National Bureau of Economic Research could declare the current mess to be a recession in hindsight based on weakness in income, industrial production, and employment...

...many sectors of the economy are doing fine. By stimulating exports, the weak dollar is giving a lift to farmers, miners, and manufacturers. Procter & Gamble and General Motors both reported strong overseas earnings on Apr. 30. The health-care sector is cruising along as well...

Other sectors, though, are desperately weak, in particular financial services and housing. Residential construction fell at an annual rate of 26.7% in the first quarter, the worst in 27 years. The number of vacant single-family homes and condos rose to nearly 2.3 million in the first quarter, a record. Consumer confidence is in the pits, hurting retailers.

And despite the efforts of Bernanke & Co., there's still plenty of stress in the financial system. Banks are charging one another a big premium over the fed funds rate for loans, reflected in the elevated London interbank offered rate. One reason: They're hoarding cash to guard against incurring more loan losses or being forced to take assets back onto their balance sheets...

The fear of more losses is justified. Contango Capital Advisors CEO George Feiger predicts that losses will soon spread beyond residential mortgages to commercial real-estate loans and then on to weaker parts of the corporate sector, such as companies that have undergone leveraged buyouts. And Feiger notes that banks suffering losses will be forced to cut back on new lending.

That's why the Fed may need to cut more. By reducing the federal funds rate, it can lower banks' borrowing costs so their profit margin on lending goes up. Retained profits will give them the capital base they need to lend more, juicing economic growth.

Inflation hawks worry that rate cuts will cause inflation to become entrenched. But the slow increase in the core rate of inflation over the past year shows that soaring food and energy prices have yet to spill over into the rest of the economy. In the case of energy, there's one obvious reason: Spending on gasoline depresses the economy by taking money out of consumers' wallets and sending it abroad. The same goes for imported food.

Another reason inflation continues to remain under control is that, contrary to appearances, the Fed has not pumped up the money supply to combat economic weakness. It has offset its new kinds of lending to commercial and investment banks by simultaneously draining money from the banking system. The core money supply, known as M1, grew just 0.2% in the year through March. And even at 2%, the fed funds rate is not highly stimulative, given that it's no lower than the year-over-year core inflation rate.

The Fed has quelled the panic that prevailed in the financial markets until recently. But it still has to nurse an economy weighed down by massive bad debts. That is likely to require a period of easier money. Don't put away those fire hoses quite yet.

Bernanke finally admits the obvious: a recession

Fed Chairman Ben Bernanke has finally dipped his toes into the waters of reality, admitting that real gross domestic product "could even contract slightly." He also discussed revealed his thoughts on managing inflation versus propping up the sicker parts of the economy, including rescuing Bear Stearns from an almost-certain wipe-out. From an L.A. Times story:

Federal Reserve Chairman Ben S. Bernanke warned this morning that threats to the economy are far from over, with unemployment on the rise, prices for food and fuel growing, and real incomes on the wane...

The Fed chairman said he considered inflation to be a secondary threat to the economy, citing a leveling off of commodities prices in the futures markets, especially for oil. And he said that he expects the economy to be on the rebound by the end of the year....

Bernanke also defended the Fed's decision last month to underwrite the buyout of troubled Wall Street brokerage Bear Stearns by JPMorgan Chase -- a decision that led the central bank for the first time in more than 70 years to make loans to non-banks.

"With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions in those markets and could have severely shaken confidence," Bernanke explained. "Given the current exceptional pressures on the global economy and financial system, the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain."

So what about homeowners on trouble? That one was handled by committee chairman Chuck Schumer:

"The administration was all for government action in the case of Bear Stearns, but what about government action to help homeowners?" Schumer asked in opening remarks. "Yes, Bear Stearns was in trouble, but millions of homeowners are also in trouble. Yes, Bear Stearns needed government intervention, but what about government intervention for homeowners?"

Owning up to the reality of a recession

It's sometimes hard to avoid being frustrated by the various games played by economists and experts with agendas (and how they tend to color their analysis a la the NAR's David Lereah or now Lawrence Yun) but now that a recession seems a foregone conclusion, Business Week writer Peter Coy provides an overview of what ails the U.S. economy and what we might expect the government to do:

How bad will this downturn get? No one can know because we've never experienced such a headlong slide in the housing market—and this comes at a time when its current value of $20 trillion accounts for the vast majority of most families' wealth. Right now most economists expect the U.S. to experience a mild, short recession in 2008. But there is at least a possibility of a steeper decline that the traditional recession remedies—interest-rate cuts here, deficit spending there—won't be able to handle...

Broadly speaking, policymakers have three options for putting a safety net under the economy. Each has its pros and cons, and the cons become most apparent when the measures are taken to an extreme. That's why a three-pronged approach that uses each option in moderation may be the best way to go.

The first option is to depend mainly on aggressive measures by the Fed to flood the economy with liquidity. That's already under way. On Mar. 11, the central bank announced an innovative program to lend $200 billion in high-grade Treasury securities to big commercial and investment banks. It will allow them to use, as collateral for the loans, valuable but harder-to-trade assets such as AAA-rated mortgage-backed securities. The measure could enable them to start lending and borrowing again. The cons: no direct help for distressed homeowners who don't qualify for refinancing.

A second option would be some sort of a government-led bailout of homeowners, which reduces the burden of looming debt and high interest rates, and limits foreclosures. The third option would be assistance to the lenders and holders of mortgage-backed securities in an effort to thaw the credit markets. The trouble is, both of these options are seen as unfair by those who don't require bailouts. And it's up in the air who would have to bear the biggest share of the housing-related losses: homeowners, investors, or taxpayers.

It's indisputable, though, what policy changes cannot accomplish. There's no way to stop home prices from falling; they got way too high, and the current crisis won't end until they get back to what the market concludes is a sustainable level. It's not reasonable to try to avoid a recession, either. When a sector as huge as housing goes into a deep dive, it's pretty much inevitable that the rest of the economy will be affected...

Policymakers have an obligation to make sure the downturn doesn't gather speed and turn into something along the lines of the long and deep 1973-75 recession. It is extremely dangerous for there to be millions of homeowners who have a clear financial incentive to abandon their homes because they are worth less than the mortgages on them. Already there are signs that the stigma of abandoning a home is fading, as desperate homeowners flock to Web sites with names like walkawayplan.com and youwalkaway.com...

The entire capital of the U.S. banking system would be wiped out many times over if everyone who was underwater on a mortgage turned the keys over to their lenders...

There's a social aspect, too. Concentrated foreclosures, voluntary and otherwise, can destroy neighborhoods because abandonment increases decay and crime. And the housing crash undermines the social compact...

The most urgent task is making sure that the financial system isn't so crippled by losses that it ceases to perform its critical function of moving capital from those who have it to those who need it. Asset deflations can damage the financial system. Further complicating matters is that securitization and derivatives make it nearly impossible to figure out who's vulnerable to a big loss until things blow up...

The Fed's approach is double-barreled. Since last summer it has cut the federal funds rate from 5.25% to 3%, and markets are forecasting the central bank will cut to around 2% before it finishes. The Fed may need to go even lower, though, perhaps to 1.5% or even back to its 2003-04 level of 1%...

The Fed's second tactic is to ease the credit crunch by convincing market players that suspect assets really are worth something. It's doing that by giving commercial and investment banks new options for backing up their loans. The Fed's Mar. 11 move is designed to help its primary dealers—20 huge firms at the core of the financial system. They will be able to pledge a wider variety of collateral—including AAA-rated private label mortgage-backed securities—in exchange for top-quality Treasuries. And the loans will be for 28 days instead of just overnight...

But the Fed can't do it alone. Lower rates don't help homeowners who can't qualify for a new mortgage because their homes have lost too much value. Also, massive cuts raise the risk of inflation, which in turn pushes up long-term interest rates, partially neutralizing the Fed's efforts. The Bush Administration's $152 billion economic-stimulus package will help a bit, but economists expect the lift to fade by the end of 2008, not long after the November elections...

But one person's "necessary intervention" is another's "outrageous bailout."

When the government steps in, that's when the battle starts about who wins and who loses. Home mortgages account for 44% of private nonfinancial debt, making them one of the main pillars of the debt market. If the value of household real estate falls by 25%—an amount many economists consider plausible—it would be a $5 trillion loss of wealth. Any type of government bailout plan will alter the eventual distribution of losses between homeowners and investors...

The purest form of bailing out homeowners would be forcing lenders to reduce the amounts borrowers owe. Such a "cramdown" could be accomplished by legislative fiat or, more likely, by changing the federal bankruptcy law to allow judges to reduce mortgage debt in a Chapter 13 reorganization the same way they're allowed to reduce other debts...

The downside: In the short run, lenders might face even bigger losses. In the long run, they would charge higher interest rates for fear of future cramdowns...

At the other extreme are ideas that would bail out the lenders without trying to prop up prices. Harvard's Feldstein, who publicized his plan in a Wall Street Journal op-ed piece on Mar. 7, would have the federal government make low-cost personal loans to families equaling 20% of their mortgage debt. The homeowners who took the offer would have to use all of the money to pay down their mortgages.

That would give a huge shot of cash to lenders and would reduce the likelihood that borrowers would walk away from their homes since the remaining mortgage debt would be well under the home's value. But it would expose taxpayers to risk while doing nothing to reduce the total indebtedness of households. And by letting lenders off easy, it would embolden them to think they could lend irresponsibly again with impunity...

In the Presidential race, Republican Senator John McCain doesn't want to bail out either side, favoring private workouts between borrowers and lenders. Here's how he summed up his feelings on Mar.11: "It is not the government's role to bail out investors...or lending institutions who didn't do their job."

Democratic Senators Barack Obama and Hillary Clinton both tilt toward homeowners, but Clinton is more aggressive, calling for a voluntary 5-year freeze on subprime mortgage rates and a 90-day moratorium on foreclosures...

One idea that's gaining support from some liberals and conservatives alike is the creation of a modern-day version of the Home Owners' Loan Corp., a Depression-era agency that bought mortgages at a discount and issued new, more affordable ones...

Even if the warring parties agreed to such a plan, there would still be plenty of scope for conflict...Each side, naturally, would cloak its arguments in the public interest. Lenders would try to dump the worst-performing loans on the government and retain the healthy ones, notes Elmendorf. And any wide-ranging program would inevitably help many undeserving borrowers and lenders.

One danger is that political brawling will lead the debate away from what's best for the economy as a whole. There are many ways to get this wrong. In Japan in the 1990s, for example, insolvent but politically powerful companies got their banks to keep them alive with low-cost loans, which meant that the banks had no money left over to fund new businesses. That led to Japan's infamous Lost Decade of slow growth.

All that said, some inefficiency and political conflict may be an acceptable price to pay for programs that lessen the very real risk of a systemic financial meltdown.

In other words, there will be plenty of angry renters who sat out this entire boom-and-bust phase waiting for the typical fundamentals to return to the markeplace. But it's not just about them and their dreams for affordable homes, anymore. As part of a society, we sometimes have to hold our noses when we bailout those seen as undeserving.

The "Humpty Dumpty" Economy

Writing in Barron's, economic bear Alan Abelson has coined an interesting term: The Humpty Dumpty Economy. What that means is that although the economy will certainly manage to piece itself together again, it's going to take some time to fix what ails us and the end result may look different from what it did before. It's a changing world, and Humpty is going to have to change with it:

The trouble with striving to look on the bright side of things is that it's pretty darn hard these days, to tell the truth, to find the bright side of anything. For what we're all being forced to bear witness to is an extraordinary and extraordinarily blood-curdling sight: the enormously endearing and widely presumed eternal Goldilocks economy is, right before our startled eyes, metamorphosing into the Humpty Dumpty economy.

Just to lift your spirits a bit, we hasten to reassure you that even though like its prototype in the old ditty, the Humpty Dumpty economy is due to suffer a great fall, the pieces most definitely can be put together again. It's just that it may take quite a few years, or maybe more than quite a few years. And, we should admit, too, that the end result will look more like Humpty Dumpty stuck together with Band-Aids than Goldilocks....

The wrenching changes being wrought by a falling Humpty Dumpty economy, largely created by credit, and a swooning stock market, kited by leverage, are everywhere evident. Housing foreclosures swirled up to an all-time high of 0.83% of all mortgages nationwide. Over 5.8% of homeowners were behind in their mortgage payments, the largest number in upwards of two decades. House prices lost a staggering 8.9% in 2007 as a whole (and they're still tumbling).

Yet, despite the ubiquitous plunge in prices, the supply of unsold houses rose to four million, or to over 10 months' worth. Homeowners' equity fell below 50% for the first time since 1945, hitting a new low of 47.9%. As Barry Ritholtz nicely put it, never before have banks and the other various and sundry lenders owned more of the average American's house than he or she does.

Speaking of lenders, thrifts and savings outfits lost a cool $5.24 billion in the final quarter of '07, as they diligently wrote down tons of goodwill (perhaps it should more properly be called ill will).

In January, to continue this lugubrious litany of the damage done in the Humpty Dumpty economy and the ravages wrought by the bear market, the equity portfolios of the largest U.S pension plans, according to the calculations of Mercer, which keeps tabs on such things, shrunk by $110 billion. Not exactly chump change, even when it's other peoples' money.

The credit crunch, as has been deservedly publicized, has begun to punch a few holes in the great private-equity bubble and a scattering (so far) of hedge funds have been badly wounded, several fatally.

It's almost as if all its tributaries flooded the river Styx, causing its fetid and noxious waters to spill far and wide over its banks. And what it all spells in bold-face letters, of course, is recession.

But as Jay and David Levy, father and son proprietors of the famed Jerome Levy Forecasting Center, contend in their latest commentary, this is a much different animal than the tame and docile recessions we've grown accustomed to.

Never, they point out, "have such broad and severe credit-quality problems preceded a recession. Recessions cause burgeoning financial problems to intensify, not recede. Credit problems lag the business cycle, not the other way around."

Not surprisingly, then, they mock as "bizarre" the popular notion that the economy will rebound smartly after only six months of negative growth. Instead, they warn, "The financial damage accompanying the recession will be unprecedented in modern history and the economic consequence will be dire."...

"NEVER ASK THE BARBER IF YOU NEED A HAIRCUT. Never ask the Realtor if the house you are considering buying is a bargain at the price offered. And never ask the government to calculate the rate of inflation when it can save millions of dollars in cost-of-living adjustments."

Those tidbits of wisdom come from Ray DeVoe, who authors the eponymous DeVoe Report. We've known Ray for a bunch of years and read with pleasure his weekly observations on the market, the economy and life in general. A shrewd and, even rarer, sane investment type, he does his business under the Jesup & Lamont flag.

What makes the quote above especially pertinent, obviously, is that even while recession's clammy hand makes itself felt, inflationary fires are starting to flare in earnest, stirring unfond memories of the 1970s and early 1980s, when the cost of virtually everything from diamonds to doughnuts vaulted into the wild blue yonder. Ray takes due note of the double whammy of recession and inflation back then and points out that the measures of both used at the time were a heap more accurate than those Uncle Sam relies on today. Especially notable, we think, was the calculation he cites of January's 4.3% rise in the consumer-price index (vs. January 2006) by John Williams of Shadow Government Statistics.

Using the degimmicked yardstick that was in use prior to 1980, Williams comes up with a reading of 11.8%, which, to these tired eyes, seems a quantum leap up from the official 4.3%. And, more to the point, it squares a lot more closely with $106-a-barrel crude, not to mention upward leaps just this year of commodities of every kind from 30% or more in aluminum, oats and silver and double-digit gains in coffee, corn, wheat and zinc, among others.

Before 1980 and before fiddling with the CPI became the fashion at the Bureau of Labor Statistics, the reckoning was, as Ray points out, based on "a market basket of goods and services bought and used by the average American family." A measure, in other words, of the cost of living and evidently a good deal closer to the truth than the finagled numbers now in favor...

In contrast to the consensus expectations of 25,000 additional jobs, payrolls shrunk by a tidy 63,000 and that doesn't quite tell the whole dreary story. The private sector lost 101,000 jobs. So only by grace of hiring by the federal and local governments was the loss shaved.

What's more, our old bugaboo, the birth/death concoction, supposedly chipped in 135,000 jobs. We'll be generous and assume that half of those 135,000 mythical additions were real; anything more than that, though, isn't being generous; it's being downright silly.

Manufacturing took it on the chin, shedding 52,000 jobs. Construction was down 39,000. Those old reliables restaurants and health care tacked on 19,000 and 37,000 new slots, respectively. As Philippa Dunne and Doug Henwood of the Liscio Report note, something like 75% of the employment gains over the past year have been in health care and restaurants. Neither category typically abounds with exceptionally high pay and, we have a hunch, the eateries particularly are going to be painfully pinched by rising costs and declining patronage.

The unemployment rate ticked down, but that, alas, was due to a sharp contraction of the labor force. While Philippa and Doug make a reasonable argument that this may not wholly reflect would-be workers opting out because they can't find a job, we're not so sure. In those circumstances, psyches are tough to plumb.

An easier call is that Friday's dismal job report cinches it: We're in a recession.

UCLA Anderson Forecast insists no recession yet

The UCLA Anderson Forecast has released their latest report, which insists that the housing bust will not bring the overall economy into recession. Not surprisingly, there are many other economists who would disagree.

First, the Anderson report according to the L.A. Times:

Brushing aside conventional wisdom, UCLA economists say California and the nation will survive the housing slump and job losses without plunging into recession -- although it will still be miserable for many Americans.

"We are holding firm: no recession this time," UCLA Anderson Forecast Director Edward Leamer said in a report being released today...

Housing remains the big drag on the economy, UCLA analysts say. But they say the rising tide of foreclosures is related more to falling prices and escalating interest rates than to job losses, which triggered previous spikes in foreclosures.

People "are walking away from their homes in droves not because they lost their jobs but because home prices are falling," Leamer said.

Apparently Dr. Leamer is sticking to his guns because he's already made his bet, and rather than reverse course is, in Las Vegas parlance, instead doubling down:

In staking out the contrarian position, Leamer noted that UCLA bucked other forecasters in 2001 by correctly predicting that year's recession.

"We got it right, and we stood alone back then," he said. In jest, he added later that he had "submitted my resignation letter, in the event I am wrong."

He forgot to add "Nya nya!" Still, he is leaving himself some wiggle room should his bet become obviously wrong:

Whether truly in recession or not, Leamer said the economy would be sputtering. It remains so fragile that "if there is a quick halt to consumer spending, we will for sure have a recession in 2008," he added.

National unemployment will peak at 5.6% at the beginning of 2009, according to the forecast, from 4.8% currently.

"In a recession, jobs are easy to lose and hard to find. This time there are not a lot of layoffs, so jobs aren't easy to lose, but they are hard to find," Leamer said.

So far, most of the jobs lost in California and the nation have been in construction and financial services, but those losses are small compared with the severe manufacturing job losses in the recessions of 1990 and 2001.

After the 2001 recession, 358,000 manufacturing jobs were lost in California, UCLA economist Ryan Ratcliff noted. By comparison, the state has shed 55,000 financial sector and 106,000 construction jobs since 2007...

Statewide unemployment will peak at the end of 2008, and will decline slightly in 2009, but will remain close to 6% until 2010 -- when it will fall to 5.5%, UCLA predicts...

Home prices will also be slow to bounce back, and the UCLA forecasters do not predict when the housing market will recover.

However -- as compiled by the L.A. Times -- Dr. Leamer may be fairly lonely in his assessment:

* Warren E. Buffett, chief executive of Berkshire Hathaway Inc.: "By any common-sense definition, we are in a recession."

* Lawrence H. Summers, former U.S. Treasury secretary: "We are facing the most serious combination of macroeconomic and financial stresses that the U.S. has faced in a generation -- and possibly, much longer than that."

* Jack Welch, former General Electric Co. CEO: "If I had to bet a dollar or two, I'd bet we'll have a positive GDP in the first quarter, and the second quarter. But it certainly is a slowdown of enormous proportions from what we were experiencing."

* Donald H. Straszheim, vice chairman of Roth Capital Partners: "It's clear to me that the U.S. economy is in a recession."

* David Rosenberg, Merrill Lynch economist: "According to our analysis, this [recession] isn't even a forecast anymore, but is a present-day reality."