The economy, now suffering effects of the financial crisis that hit the nation in 2007, has all the symptoms of bipolar disorder.
This is according to a team of economists from the UCLA Anderson School of Management, whose quarterly UCLA Anderson Forecast measures the strength of the state and national economies.
National GDP rose 5.9 percent in the fourth quarter of 2009, and the forecast predicts continued growth in 2010.
Unemployment, however, remains at near-record levels, having peaked above 10 percent in mid-2009. In California, unemployment is still increasing and has risen from below 5 percent in 2006 to 12.5 percent presently.
The forecast puts part of the blame for slow economic recovery on federal policies, which include an unsustainable zero interest rate and temporary government spending programs.
“Make no mistake, the follow-through to a sustained expansion in employment has been disappointing,” the forecast states. “The policy uncertainty coming out Washington has made more difficult for businesses to ascertain their long-term cost structures.”
Consumer confidence has also been slower to return than initially expected, said Jerry Nickelsburg, a senior economist for the forecast.
Still, conditions for job growth are ripe in many sectors.
“In California, there is a demand picking up for exports, for professional and business services, and … the conditions are there for residential construction to begin to grow again,” Nickelsburg said.
While the state’s economy looks to be gradually picking up, the state budget is not growing. California’s budget deficit is massive, and spending will eventually be forced to contract, Nickelsburg said. Raising taxes, he added, will not solve the problem.
“Kind of the last thing you want to do is raise taxes in a recession,” Nickelsburg said. “If people aren’t spending now, they’ll spend less when you take more from them.”
California’s budget woes are reflected across the country.
As the government has repeatedly caved to requests from special interest groups, spending has spun out of control, said senior forecast economist David Shulman.
“The money is not there,” Shulman said. “The question is what is going to get cut.”
This reality has taken a toll on the University of California system in particular. In 2009, average state spending per student was less than half of what it was in 1990, according to a report from the UC Office of the President.
Continued cuts to higher education may prove detrimental in the long run, Nickelsburg said.
“Innovation – the development of new products and technology – is an important part of economic activity,” he said. “A big driver of that is the education system, and that it has been impacted by budget cuts has a wider impact.”
Ultimately, the issue of what will be cut is a political decision, and tough choices must be made.
“California is between a rock and a hard place,” Nickelsburg said. “Maybe this is why I’m an economist and not a political scientist.”