The Housing Chronicles Blog: UCLA Anderson Forecast insists no recession yet

Tuesday, March 11, 2008

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."

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