The UCLA Anderson Forecast has downgraded its forecast of the nation’s near-term economic outlook in response to the economy’s rapid decline amid the coronavirus pandemic.
Real GDP is on track to decline 7.5% from the first fiscal quarter to the second, and an additional 1.25% in the third quarter, according to senior economist David Shulman. He said a contraction that size is expected to drive the official unemployment rate to a peak of around 13% in the fourth quarter, and result in about 17 million lost jobs.
Shulman said the forecast suggests the economy should rebound by 1% in the fourth quarter. The rate of growth is expected to accelerate in early 2021 assuming the effects of COVID-19 abate, but a recovery back to an employment level equivalent to the final months of 2019 won’t occur until late 2022, according to Shulman.
It’s the second revision of the UCLA Anderson’s regular quarterly spring forecast, originally published March 12 and initially revised March 16.
“While we normally would use the historical data regarding expansions and recessions to form a forecast, this economic shutdown creates an economy so unlike any we have ever experienced that the historical data are rendered nearly irrelevant,” Professor Emeritus Ed Leamer said.
Regarding California, UCLA Anderson Forecast director Jerry Nickelsburg expects the state’s unemployment rate to be higher than the rest of the U.S., predicting it will peak at more than 16%, with 2.2 million jobs lost statewide.
Nickelsburg says a sharp contraction in income and taxable sales will cause increased stress for state and local government at a time when demands on them are increasing. As with the rest of the country, employment in California will not return to its previous peak levels until late 2022, the forecasters say.
University of Chicago economist Professor Frank Knight contrasted decision-making with known probabilities — uncertainty — and decision-making with unknown probabilities — risk. His analysis: “There is a lot of risk out there now.”
Implicit in the latest forecast, of course, is the assumption of an abatement of the pandemic and accompanying safer-at-home orders this summer. The forecast team says they are monitoring both the appropriateness of this assumption and the unique economic events currently unfolding, and may again update the analysis as events dictate.
— City News Service
