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Fundamental economic shift underlies recovery
Tom Abate, Chronicle Staff Writer
Wednesday, September 16, 2009
(09-15) 20:22 PDT -- California will trail the nation in emerging from the Great Recession, as consumers save more and spend less in a behavior shift that will slow growth and job creation in the short term but eventually lead to a stronger economy.
That message emerged from two separate reports released Tuesday by the UCLA Anderson Forecast and Beacon Economics, a consulting practice with offices in San Rafael.
Both forecasts characterized California as the epicenter of back-to-back consumption binges fueled by the dot-com boom and the housing bubble, and argued that now the state faces big adjustments as it recovers from ills that have long plagued the U.S. economy.
"Consumers have been on a spending binge ever since 1995," said Jon Haveman with Beacon Economics, as soaring 401(k)s and, later, inflated home prices made Americans feel so wealthy they stopped saving money.
"California is different from the rest of the United States in the magnitude of all this," said Jerry Nickelsburg with UCLA Anderson, as people here exemplified the bad American habit of borrowing to spend.
"Now the easy-money days are over, the inflated asset values are gone, the home equity boom is over and people are going to have to save more, which means less consumption and slower growth," Nickelsburg said.
Unemployment high
Haveman said consumer spending is likely to decline from about 71 percent of all economic activity to more like 67 percent over the next few years, as the economy shifts into a lower gear, making businesses reluctant to hire and keeping unemployment high.
The UCLA Anderson Forecast anticipates the national jobless rate, now 9.7 percent, will hit 10.1 percent early next year and won't dip back below double digits until the end of 2011.
In California, where the big housing bust already has helped send unemployment to 11.9 percent, the UCLA Anderson Forecast anticipates that the rate will hit 12.2 percent by year end, then average 11.5 percent in 2010 and 10 percent during 2011.
The Beacon forecast included estimates for the job market in the nine-county Bay Area, where employment, though weak, has been better than at the state level during the recession.
Beacon said the regional unemployment rate, now approximately 10.4 percent, should peak at 10.8 percent later this year, fall back to around 10 percent in 2010, and end 2011 at 8.3 percent.
Both forecasts anticipate that the shift from spending to saving now under way will become permanent and force lasting changes for the U.S. and California economies - a proposition that is debatable.
'Concept of splurging'
"This concept of a fundamental shift is overrated," said Scott Krugman, spokesman for the National Retail Federation. "What we see right now is the consumer shopping needs, not wants, but as the economy continues to improve I don't think people will give up the concept of splurging."
Ed Farrell, director of research for Consumer Reports, said the organization recently conducted a nationwide poll that found that many Americans have been paying down debt, focusing on essentials and saving more - and say they intend to continue doing so after the recession ends. "If people live up to their word, there seem to have been some permanent lessons learned," he said.
Borrowing too much
Ed Leamer, director of the UCLA Anderson Forecast, said consumers usually roar back from recessions with spending that lifts production and fuels hiring, but he thinks that is unlikely during this recovery because Americans have been living beyond their means for too long - borrowing too much and importing more than the country sells abroad.
"We need to turn our shopping malls into factories," Leamer said "Our economy over the next decade is going to have to build more of the stuff we buy."
Haveman said the painful adjustments now under way should eventually benefit California and the Bay Area, which lead in technology, biotechnology, clean energy and other cutting-edge industries.
"The light at the end of the tunnel is visible, but it's still a long way off," he said.
Yes, Tom, we must "build more stuff". How you are leaving to others.... The SF Chron. was once a decent regional paper. Now it's offerings are so paltry they can't even be deconstructed....
Fundamental economic shift underlies recovery
Tom Abate, Chronicle Staff Writer
Wednesday, September 16, 2009
(09-15) 20:22 PDT -- California will trail the nation in emerging from the Great Recession, as consumers save more and spend less in a behavior shift that will slow growth and job creation in the short term but eventually lead to a stronger economy.
That message emerged from two separate reports released Tuesday by the UCLA Anderson Forecast and Beacon Economics, a consulting practice with offices in San Rafael.
Both forecasts characterized California as the epicenter of back-to-back consumption binges fueled by the dot-com boom and the housing bubble, and argued that now the state faces big adjustments as it recovers from ills that have long plagued the U.S. economy.
"Consumers have been on a spending binge ever since 1995," said Jon Haveman with Beacon Economics, as soaring 401(k)s and, later, inflated home prices made Americans feel so wealthy they stopped saving money.
"California is different from the rest of the United States in the magnitude of all this," said Jerry Nickelsburg with UCLA Anderson, as people here exemplified the bad American habit of borrowing to spend.
"Now the easy-money days are over, the inflated asset values are gone, the home equity boom is over and people are going to have to save more, which means less consumption and slower growth," Nickelsburg said.
Unemployment high
Haveman said consumer spending is likely to decline from about 71 percent of all economic activity to more like 67 percent over the next few years, as the economy shifts into a lower gear, making businesses reluctant to hire and keeping unemployment high.
The UCLA Anderson Forecast anticipates the national jobless rate, now 9.7 percent, will hit 10.1 percent early next year and won't dip back below double digits until the end of 2011.
In California, where the big housing bust already has helped send unemployment to 11.9 percent, the UCLA Anderson Forecast anticipates that the rate will hit 12.2 percent by year end, then average 11.5 percent in 2010 and 10 percent during 2011.
The Beacon forecast included estimates for the job market in the nine-county Bay Area, where employment, though weak, has been better than at the state level during the recession.
Beacon said the regional unemployment rate, now approximately 10.4 percent, should peak at 10.8 percent later this year, fall back to around 10 percent in 2010, and end 2011 at 8.3 percent.
Both forecasts anticipate that the shift from spending to saving now under way will become permanent and force lasting changes for the U.S. and California economies - a proposition that is debatable.
'Concept of splurging'
"This concept of a fundamental shift is overrated," said Scott Krugman, spokesman for the National Retail Federation. "What we see right now is the consumer shopping needs, not wants, but as the economy continues to improve I don't think people will give up the concept of splurging."
Ed Farrell, director of research for Consumer Reports, said the organization recently conducted a nationwide poll that found that many Americans have been paying down debt, focusing on essentials and saving more - and say they intend to continue doing so after the recession ends. "If people live up to their word, there seem to have been some permanent lessons learned," he said.
Borrowing too much
Ed Leamer, director of the UCLA Anderson Forecast, said consumers usually roar back from recessions with spending that lifts production and fuels hiring, but he thinks that is unlikely during this recovery because Americans have been living beyond their means for too long - borrowing too much and importing more than the country sells abroad.
"We need to turn our shopping malls into factories," Leamer said "Our economy over the next decade is going to have to build more of the stuff we buy."
Haveman said the painful adjustments now under way should eventually benefit California and the Bay Area, which lead in technology, biotechnology, clean energy and other cutting-edge industries.
"The light at the end of the tunnel is visible, but it's still a long way off," he said.
Yes, Tom, we must "build more stuff". How you are leaving to others.... The SF Chron. was once a decent regional paper. Now it's offerings are so paltry they can't even be deconstructed....
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