UCLA Anderson Forecast: Economy Healing but Not out of Hospital Yet

Calif. Budget Crisis Will Impact State's Ability to Recover from Recession
LOS ANGELES--(Business Wire)--
In its second quarterly report of 2009, the UCLA Anderson Forecast upgrades the
condition of the national economy, moving it out of "intensive care" while
noting that it is still "very sick."

The Forecast sees the gross domestic product improving from negative growth in
the second quarter of this year to nearly perceptible growth in the final
quarter while acknowledging that this tepid growth will be accompanied by an
unemployment rate that will continue to rise well into 2010 and into double
digits.

In California, the worst of the recession is beginning to ease, but any optimism
must be tempered by the specter of a state government poised to contract at the
worst possible time.

The National Forecast

"What we are perhaps most concerned about is not the timing of the recession's
end, but rather the shape of the recovery to come," writes UCLA Anderson
Forecast senior economist David Shulman in an essay titled "Out of Intensive
Care."

"We are forecasting the weakest economic recovery of the postwar era with real
growth on the order of 2-3%," Shulman noted.

The Forecast predicts that recovery will be slow due to recession-scarred
consumers who will focus on their savings, and the dramatic adjustment in
financial services, the automotive industry and the retail sector. The recovery
will also be inhibited by the financial excesses of 2003-07 in the form of
millions of foreclosed homes and a plague of "upside-down" mortgages.

The Forecast also predicts that, after declining by an estimated 2.9 percent in
the current quarter, real GDP growth will be zero in the third quarter of 2009
and 0.6 percent in the year's final three months. Unemployment is predicted to
peak at 10.4 percent in 2010 and could still be close to 10 percent by the end
of 2011.

The California Forecast

According to UCLA Anderson Forecast senior economist Jerry Nickelsburg, there is
nothing happening in California that will help pull the state out of recession
in advance of the nation.

"California," Nickelsburg writes, "is in for a continued rough ride for the
balance of 2009 and is not going to see economic growth return until the end of
the year, shortly after the U.S. economy begins to grow."

The dire conditions surrounding the state budget will contribute to prolonging
tough conditions in California, according to the report.

In his essay, Nickelsburg notes that Gov. Arnold Schwarzenegger is attempting to
close the state's $24 billion budget gap with a combination of fee increases,
forced borrowing from local government, the sale of state assets and, primarily,
budget cuts.

Yet that the real risk for California, Nickelsburg writes, is the possibility
that there will be no budget agreement at all and that the chaotic and
inefficient spending cuts that would likely follow would have an even more
severe impact on the ability of California to stem the downturn in economic
activity this year.

Overall, the forecast for California is for a very weak first two quarters of
2009, to be followed by very little growth in the last six months of the year.
The economy will begin to pick up in 2010 and return to more normal levels of
growth in 2011.

The expectation is that total employment will contract by 3.5 percent in 2009
and will not grow in 2010. Once growth returns in 2011, it will rise at 1.8
percent.

The UCLA Anderson Forecast is one of the most widely watched and often-cited
economic outlooks for California and the nation and was unique in predicting
both the seriousness of the early-1990s downturn in California and the strength
of the state's rebound since 1993. More recently, the Anderson Forecast was
credited as the first major U.S. economic forecasting group to declare the
recession of 2001.

The UCLA Anderson School of Management, established in 1935, is regarded among
the leading business schools in the world. UCLA Anderson faculty are advancing
management thinking through innovative research and teaching. Each year, UCLA
Anderson provides management education to more than 1,700 students enrolled in
M.B.A., executive M.B.A., fully-employed M.B.A. and doctoral programs, and to
more than 2,000 professional managers through executive education programs.
Combining highly selective admissions, varied and innovative learning programs,
and a worldwide network of 36,000 alumni, UCLA Anderson prepares students to
become future global leaders.

UCLA Anderson School of Management
Hilary Rehder, 818-689-5551
hilary.rehder@anderson.ucla.edu
or
Susanna Park, 310-206-7707
susanna.park@anderson.ucla.edu

Copyright Business Wire 2009