In the September Forecast report, UCLA Anderson Forecast Senior Economist David Shulman writes that while the economy is returning to normal, it is still operating well below what would have been expected prior to the most recent recession. As an illustration, Shulman cites a report from Sentier Research that notes that the current median household income is lower than it was in June 2009, the ending month of the recession.
In an essay titled, "Returning to Normalcy, Sort of" Shulman says that payroll employment growth will be a sustained 200,000 jobs per month through 2015 and that the unemployment rate will steadily fall to 6.5 precent by the end of the forecast period. In the near-term, the adjustments business firms will make as a result of the implementation of the Affordable Care Act could negatively affect the quantity and quality of the net increases in employment, as firms possibly convert full-time employees to part-time and smaller businesses limit their headcount to 50 full-time employees.
The forecast continues to believe that the housing recovery is underpinned by a five-year period of underbuilding, rising household formations, an improved employment and still-low-by-historical-standards mortgage rates. As to the latter, the fear of higher rates in the future makes the current rate environment more attractive to buyers. The result is a forecast that calls for housing starts to increase to 965,000 units this year, compared to 783,000 last year. This is actually a reduction from previous forecasts, due to a slower ramping of production than originally envisioned.
The forecast calls for a return to normal growth on the order of 3 percent in 2014 and 2015, a percentage point higher than the 2 percent growth rate the economy has experienced since the recession ended. The forecast also calls for an end to the very low interest rates we have become accustomed to the past few years. While a resumption of normal growth is a good sign, Shulman does caution that it will not be enough to restore the economy back to its pre-recession growth path.
Source: UCLA Anderson School of Management