UCLA Forecast: More Slow Growth
More slow economic growth, the L-shaped recession.
The UCLA Anderson School forecast for this quarter sees continued slow economic growth.
UCLA Anderson Forecast Director Edward Leamer said that the U.S. economy should show “normal growth” through 2013, defined as 3 percent increase in gross domestic product and the addition of between 150,000 and 200,000 new jobs per month.
But he said that isn’t enough to reverse recent economic damage and doesn’t amount to a recovery, which would see GDP jump by between 5 percent and 6 percent and payrolls grow by between 250,000 and 300,000 a month.
In other words things are not going to get worse, but not much better either. As my colleague Dave Schuler would put it, “An L-shaped recession.” Not surprising when you consider that we have massively over invested in both the financial sector and housing. It will likely take some time for people employed in those areas to find new employment. Especially for housing. The housing market has an excess supply, and since houses last a long time, new building for housing is likely to be very low for sometime.
“We have as many as 5.5 million workers who are permanently displaced and only about 3 million that are likely to be recalled,” Leamer said. “That’s a tough problem which is largely unresponsive to the fiscal and monetary medicine we have been taking. It is likely to take a very long time for those 5.5 million displaced workers to find jobs again, and in the meantime the economy will grow, but not as robustly as in traditional recoveries when the recalls were almost 100 percent.”
Previous discussions of high growth following the recession were wrong (e.g. Paul Krugman). Those warning of the possibility of an L-shaped recession were right (e.g. Greg Mankiw).