Experts Forecast Mixed CA Economy in 2018 and 2019

Image of workers next to tall stacks of money

California’s economy will continue revealing a mixed picture in 2018 and 2019 as solid job and wage growth are anticipated against a backdrop of unaffordable housing and weakened worker mobility.

That was the message from two different forecasts released last week that detail predictions for California and the United States: the UCLA Anderson Forecast (at UCLA) and the Chapman University Forecast (at the A. Gary Anderson Center for Economic Research).

Both organizations’ statewide research spotlights some intriguing viewpoints, trends and projections so credit unions can plan appropriately. Below is a synopsis (click here for the entire story).

(You can also access the CU Quarterly Performance Report by clicking here. Get statewide trend analysis for YOUR credit union!)

California Forecast

  • California’s economy will continue maturing in the near term before noticeably downshifting by 2019. The state’s “real” Gross Domestic Product (GDP) will post 3 percent growth from now into late 2018, but eventually drop to 2 percent by early 2019 and 1.5 percent thereafter.

  • California’s job base and personal incomes will continue their modest expansion. “Hot sectors” include construction, health/education services, information and technology, warehousing and logistics, state/local government, and professional/business services.

  • California’s housing affordability is handicapping its economy as jobs go unfilled due to worker mobility and living costs. Permits pulled by home builders will rise slightly over the next two years, but the increase will be far from what’s need to bring a sufficient number of homes onto the market to meet an immense backlog of demand.

  • California’s annual population growth will continue its tepid increase compared to prior decades. The total population will grow just above 0.5 percent annually over the next two years, adding 700,000 residents and pushing the state’s population from 39.7 million to 40.4 million.

  • Today, California’s economy in relation to the United States is in the same position it was in 2007—although macro trends mask a number of structural changes. Sharp swings in employment trends point to California’s shedding of lower-paying manufacturing jobs while adding higher-paying jobs in information services over the long term. On a side note, it will be increasingly difficult for California’s manufacturing industry to compete against lower-cost regions in the United States.

United States Forecast

  • The Federal Reserve will continue its plan to raise its “federal funds” benchmark interest rate. Financial markets and consumers will experience a 0.25 percent increase this month (December), as well as two to three quarter-point increases in 2018 and two to three in 2019.

  • The average interest rate on a 30-year fixed rate mortgage could hit 4.8 percent by late 2018. Housing affordability, however, will continue to slide downward as no countertrend is predicted to mitigate rising prices.

  • The 10-year U.S. Treasury Bond will likely hit 3 percent by late 2018 and 4 percent by late 2019. It was averaging 2.4 percent in early December 2017.

  • U.S. worker wages and consumer inflation will both rise together. Worker compensation growth (or “yearly pay raises”) will hit 4 percent by late 2018. Also, the “headline” consumer-cost inflation rate (which averaged 1.2 percent over the past two years) will rise and stabilize at 2.5 percent.

  • U.S. consumer spending growth will continue hitting its average annual 2.5 – 3 percent range from 2017 – 2018. However, it will start dropping in 2019 as the automobile-sales business cycle slows down. Sales of light-weight vehicles will slightly drop to 17 million in 2017 (from 17.5 million the year before) and eventually fall to 16.5 million in 2019.

  • U.S. homebuilding will continue is slow-growth trajectory. Expect 1.3 million housing units to be completed annually over the next two years. This is much higher than the 600,000-per-year experienced during the depths of the Great Recession, but still lower than many years within the “housing boom” period of 2001 – 2007.

  • U.S. unemployment will remain low. The unemployment rate will dip down to 3.7 percent in 2018 before rising back to 4.2 percent in 2019.

  • Risks to the U.S. economy include… the potential consequences of the Federal Reserve reducing its balance sheet (“quantitative tightening”), as well as a possible economic fallout in certain business/job sectors if NAFTA negotiations fail (North American Free Trade Agreement).
Pin It