UOP report: California is in worst recession since the 1930s

STOCKTON
March 25, 2009 12:01am

The California economy is currently in the steepest part of a two-year decline, according to an economic forecast from the Business Forecasting Center in the Eberhardt School of Business at the University of the Pacific in Stockton.

The state’s unemployment rate is forecast to peak just over 12 percent at the end of the year, surpassing the previous peak of 11 percent in 1982-83. The long recovery from the deep downturn is expected to keep unemployment in double digits until the end of 2011.

“California is in the midst of its worst recession since the 1930s,” says Jeff Michael, director of the Business Forecasting Center. “The state will lose nearly a million jobs before it ends, and no area of the economy is being spared.”

The University of the Pacific report says that after a year of mild recession between September 2007 and September 2008, the California economy entered a steep nosedive last fall along with the U.S. and global economy.

The state’s recession should end in the fourth quarter of 2009, but the job market will remain weak through most of 2010, the report predicts.

Nonfarm payrolls will decline by a total of 950,000 jobs statewide over the length of the two-year recession. Losses to farm employment from the current drought will push the total loss near one million jobs statewide, the report says.

Manufacturing will lead the decline in 2009, shedding 150,000 jobs this year, but construction continues to lead job losses in percentage terms, declining another 100,000 jobs (over 13 percent) in 2009.

“Once it stabilizes in mid 2010, the construction sector will have lost 400,000 jobs in four years, declining to roughly half its 2006 employment,” the UOP report says.

Healthcare is the only sector that will not contract in 2009. The 1 percent (14,000) gain in healthcare jobs is the slowest growth this decade.

Other highlights from the report include:

• Personal income declines 0.6 percent in 2009.

• Housing starts hit bottom in 2009 at 32,000 units, about one-sixth of its 2005 level. With foreclosure properties selling for less than new construction costs in much of the state, housing starts will remain low until real estate prices begin to recover. Housing starts will be back over 100,000 units in 2012.

• New car and truck sales will be below 1.2 million in 2009 after exceeding 2 million for most of the decade. These sales will rebound more quickly than homebuilding, and exceed 1.5 million units in 2011.

• Retail sales will decline $45 billion between 2008 and 2009, and will take until 2011 to recover to its previous peak in 2007.