Slowing Labor Force, Population Decline to Impact CA’s Economy

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While the California and U.S. economies will most likely dodge a recession in 2020, a slowing labor force (adults who are willing and able to work) and population-rate decline could put a drag on economic growth for decades to come.

(Join Dr. Robert Eyler for the “2020’s Big Questions: Economy, Rates, and President Trump” webinar on Monday, Dec. 9 at 10 a.m. Pacific)

That’s according to the most recent forecasts published by UC Irvine, the California Association of Realtors (CAR), Beacon Economics, and the California Department of Transportation (Caltrans) in September and October.

The keynote speakers’ opinions spotlight intriguing viewpoints, trends and projections so your credit union can plan appropriately.

The chances of a recession rocking the California and U.S. economies in 2020 is very low (and just maybe 2021 as well). The Federal Reserve will most likely lower its short-term benchmark interest rate twice in 2020, according to current financial market forecasts (even though the Fed is predicting it will not raise or drop its “federal funds” rate — something the central bank doesn’t necessarily have a great track record of forecasting). If the Fed does not cut rates next year, it will be because inflation rises (and maybe especially worker wage inflation) — but right now this isn’t expected by the financial markets. Low interest rates are providing a cushion to the current and future economy, and consumers won’t stop spending due to a 50-year record low unemployment rate (a busy, working labor force). However, areas to watch out for include the value of the U.S. dollar, slowing economic growth in foreign countries, a lack of congressional/government fiscal stimulus, uncertainty in foreign trade, and the presidential election and impeachment inquiries by some in Congress.

Nonetheless, putting aside future recessions, the California and U.S. economies are looking at average annual Gross Domestic Product (GDP) growth of approximately 1.5 percent for the foreseeable future (several decades). Demographic reasons are helping drive this trend (declining fertility and birth rates), which has been putting downward pressure on the working-age population growth rate since 2002 (workers aged 16 – 64). The average number of individuals entering the U.S. labor force is currently 25,000 per month (it used to be 240,000 in 2002, and 150,000 from 1979 – 2001). This means the U.S. economy only needs to create 25,000 jobs per month to keep economic growth afloat at a very low annual rate (1.1 percent annual GDP) — which is noticeably lower than what the nation is creating right now. Domestic labor force growth (adults entering the workforce pool) averaged 1 percent per decade from 1940 – 2010, but going forward it will be cut in half (averaging only 0.5 percent from 2020 – 2060). The economy’s heyday of growing at 4 – 5 percent GDP every year as experienced over several decades has come to an end for now (unless it experiences some sort of huge worker productivity increase that doesn’t come at the expense of laying off workers in droves).

The biggest issue isn’t a recession hitting the economy in the near future — it’s the difficulty employers are having as they try growing their businesses and cannot find “good workers” (talent). There are over 1 million more job openings than unemployed workers in the United States right now, which means some workers have so many job offers that they aren’t showing up for work on the first day (also known as “ghosting”). With the U.S. unemployment rate at a 50-year record low (3.6 percent), nearly 80 percent of the working-age population (age 16 – 64) is participating in the economy. Today, about 150,000 jobs are being created per month on average compared to 266,000 in 2015. “There’s no reason to think this isn’t going to continue,” said one forecaster at the event.

Click here to view the entire local forecast report.

You can also click here to view the League's "Your Economy — Your Credit Union" resource web page!

Additionally, download Chmura Economics and Analytics’ latest California Economic Overview to see 10-year future trends in worker occupations, employment, wages, cost of living, and industries.

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