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).

FILED UNDER: Economics and Business
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. hey norm says:

    “…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)…”
    well, more precisely this latest forecast is in agreement with maniw, and not krugman. it’s still too early to make a judgment about who was right and who was wrong about the recovery. especially when you consider major items like republicans willing to default rather than raise the debt ceiling and the gang of six five deficit deal. i can actually see those things messing up the recovery and making it more like a W. slashing spending is not going to help at all. in fact it’s an idiotic idea. but there it is.

  2. Mad-Max says:

    This forecast is nonsense. It’s silly overrated predictions like this that keep people hoping for miracles that will never happen while we wait for disaster like Greece. The arrogance of ignorance hasn’t served up well. Wake up America?

    FIGHT THE CAUSE – NOT THE SYMPTOM
    OsiXs (Common Sense 3.1)

  3. Drew says:

    “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…………”

    Not to mention that that medicine has adverse, and long lasting, side effects.

    It seems heretical here at OTB these days – except for a certain un-named essayist (SV) – to suggest that we might try to unleash the hounds…admit the sins of the past, and the drought we must go through, but let the entrepreneurs of the world do what they have done throughout history: create growth and opportunity. It may take time, but it will work.

    Can’t do that. We gotta let some ivory tower profs who have never started or run a business or created jobs in their lives, and various government apologists including our current president, plan it all out, strip the private sector of their funds, incentives and economic realities……..and implement government policy for the benefit of leftist or sympathetic voting constituencies. Any honest commenter knows that’s what happened with most of the stimulus policies.

    It isn’t working, and it won’t work. If you step back a second, its ghoulish, and inhumane. Its just “I want my philosophy to win.”

  4. hey norm says:

    “…strip the private sector of their funds, incentives and economic realities…”
    talk about being blithely untethered from reality.
    the private sector is holding trillions in cash reserves.
    taxes are at near historic lows.
    corporate profits are at record highs.
    what more do you want? seriously? taxes have been at near historic lows for ten years. growth has been anemic during that time. i keep hearing the same ol’ song and it ain’t working and it ain’t never worked.
    classic economic formula: supply and demand. what’s missing? DEMAND

  5. Rob in CT says:

    Lovely.

    I agree with norm that demand is the problem, but the root of that problem is both unemployment and household debt. Over the past decade (or two, or three?), we’ve racked up a ton debt (I’m talking household debt) in order to fuel consumption. That can’t continue. So demand falls. Except it falls a long way, because unemployment is up and the debt overhang has to be reduced (hence the increase in savings rates). In theory, once we reduce our debt load, demand can increase (but not to bubble levels). In the interim… what do we do?

    I don’t think the Titans of Industry being “unleashed” is gonna solve the problem. They don’t seem particularly leashed to me now, corporate profits are doing fine. Hence the discussion in the other thread about automation and structural unemployment.

    I don’t have the answer. I hope somebody does. My fear is a decade (or more) of this.

  6. john personna says:

    Nothing wrong with your narrative Steve, other than the odd prism that only rightists saw it coming, etc. Look at this guy:

    odograph says:
    Tuesday, June 9, 2009 at 12:57

    The Japanese scenario, and the “L shaped” recovery has been hanging over us for months.

    I think the evil twin called it fairly soon.

  7. john personna says:

    Apparently he was referring to this December 2008 video with Mohamed El-Erian at CNBC. In it, discussion of a “L-Shaped” versus “Prlolonged U.”

    Never notice in 2008 what you can wake up and make political hay with in 2011.

  8. Steve Verdon says:

    Nothing wrong with your narrative Steve, other than the odd prism that only rightists saw it coming, etc. Look at this guy:

    I never said that it was a Right-Left split, that is something you read into my post. I picked Krugman/Mankiw because of the acrimonious nature of Krugman’s comments on this regarding Mankiw’s warning of this possibility. Something I noted before.