Report: Economy will duck recession

By: ZACH FOX - Staff Writer
Despite job losses and a collapse in housing, academics say economy will grow | Monday, March 10, 2008 7:51 PM PDT ∞

Despite the recent onslaught of news showing job contraction, billion-dollar write-offs by banks and booming foreclosures, the national, state and local economies will all avoid a recession.

That is the prediction of the closely watched UCLA Anderson Forecast released today. Its opinion of slowed but positive economic growth represents one shared by many of the nation's leading economists.

"The financial industry is having a difficult time adjusting to the meltdown in the mortgage industry. Some people have extrapolated from that, saying it will spill over into the economy at large," said Jerry Nickelsburg, an economist with UCLA. "But we see nowhere in the data spillover effects of the size that would bring about a recession."

However, other economists, including Chapman University forecasters, believe the national economy has already entered a recession -- especially following a report last week indicating that the country lost 63,000 jobs in January.

"I don't see any (chief executive officer) seeing this slowdown going to rush out and hire people," said Esmael Adibi, an economist with Chapman. "Even if they don't lay off people, they're not going to hire (enough) to offset the weakness in other sectors."

The federal report on job losses in January and a downward revision of December's numbers have led some economists to declare a recession, which might put UCLA's forecast in the minority, said James Hamilton, an economics professor at UC San Diego.

"If you took an assessment from an economist a week ago, I think they would have a different opinion now," Hamilton said.

Even if the nation entered a recession, several local economists said they believe that San Diego County would avoid such a slowdown because strong growth in its biotech and tourism sectors will offset any further housing-related losses.

While Nickelsburg said San Diego will not see any more employment contraction after losing thousands of construction and real estate jobs in 2007, Adibi said he expects county job losses to accelerate.

A recession is defined as a significant decline in economic activity, marked by slowdowns in areas such as employment or sales. Kelly Cunningham, an economist with the San Diego Institute for Policy Research, a private free-market-oriented think tank, said he agrees with the UCLA Anderson Forecast in that the county will dodge a recession.

But he did differ on inflation expectations. The Anderson Forecast predicted inflation to increase at a slower rate this year than last.

"I'm kind of curious as to where they're getting that reasoning because I don't see that at all," he said.

Though Cunningham said he expects San Diego County to see employment levels steady and start growing, that does not translate to a recovery in the county's troubled housing market. He said prices will continue to decline.

Since a peak in 2005, home prices countywide have fallen 19 percent through December 2007, according to Standard & Poor's Case-Shiller Home Price Index.

And Cunningham said proposals for government intervention in the nation's mortgage crisis would be counterproductive, making housing more expensive in the future.

"We can't prop up the bubble," he said. "We have to let it deflate to a more realistic level."

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com. Comment at nctimes.com.

Despite the recent onslaught of news showing job contraction, billion-dollar write-offs by banks and booming foreclosures, the economy will avoid a recession.

That is the prediction of the closely watched UCLA Anderson Forecast released today. Its opinion of slowed but positive economic growth represents one shared by many of the nation's leading economists.

"The financial industry is having a difficult time adjusting to the meltdown in the mortgage industry. Some people have extrapolated from that, saying it will spill over into the economy at large," said Jerry Nickelsburg, an economist with UCLA. "But we see nowhere in the data spillover effects of the size that would bring about a recession."

However, other economists such as Chapman University forecasters believe the national economy has already entered a recession -- especially following a report last week indicating the country lost 63,000 jobs in January.

"I don't see any (chief executive officer) seeing this slowdown going to rush out and hire people," said Esmael Adibi, an economist with Chapman. "Even if they don't lay off people, they're not going to hire (enough) to offset the weakness in other sectors."

Even if the nation entered a recession, several local economists said they believe San Diego County would avoid such a slowdown because of strong growth in its biotech and tourism sectors will offset any further housing-related losses.

While Nickelsburg said San Diego will not see any more employment contraction after losing thousands of construction and real estate jobs in 2007, Adibi said he expects county job losses to accelerate.

A recession is defined as a significant decline in economic activity, marked by slowdowns in areas such as employment or sales.

Kelly Cunningham, an economist with the San Diego Institute for Policy Research, said he agrees with the UCLA Anderson Forecast in that the county will dodge a recession.

But he did differ on inflation expectations. The Anderson Forecast predicted inflation to increase at a slower rate this year than last.

"I'm kind of curious as to where they're getting that reasoning because I don't see that at all," he said.

Though Cunningham said he expects San Diego County's employment to slow down and start leveling off, that does not translate to a recovery in the county's troubled housing market. He said prices will continue to decline.

Since a peak in 2005, home prices countywide have fallen 19 percent through December 2007, according to Standard & Poor's Case-Shiller Home Price Index.

And he said proposals for government intervention in the nation's mortgage crisis would be counter-productive, making housing more expensive in the future.

"We can't prop up the bubble," he said. "We have to let it deflate to a more realistic level."

-- Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com.

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