September 17th, 2009 8:30 AM by Lehel Szucs
The recession is probably over, Federal Reserve Chairman Ben Bernanke said Tuesday. But don't break out the champagne just yet, according to UCLA economists.
In its quarterly report out today, the UCLA Anderson Forecast says the worst economic collapse in 70 years probably ended this quarter. But the pain of recovery and the effects of recession will be around for a decade, economists said.
And California? The pain will force the Golden State to lag behind the recovery as state and local governments reel from serious budget shortfalls.
"Main Street is not going to feel it for a long time," said senior economist David Shulman, who wrote the report on the national outlook titled "The Long Goodbye."
Still, after four quarters of decline, economic growth is resuming, Shulman said.
By the end of the month, Gross Domestic Product - the measure of all goods and services produced in the country - will have risen at 2.1 percent, economists predicted. And it will climb to 2.3 percent next quarter, with growth continuing into next year.
But the growth will be sluggish, economists warned. The unemployment picture - which they called "ugly" - will top 10 percent across the country. And if the San Gabriel Valley and Whittier areas mirror the nation and the state - now at 11.9 percent - rates in some local cities will remain in the mid to high teens.
In California, employment will shrink by another 3 percent for the year. And with only a 0.2 percent growth rate in 2010, joblessness won't fall under double-digits until the end of 2011, the report said.
Among the drags on the state's economy are still-shrinking state and local governments, according to the report. As sales-tax revenue dwindles, so too are government employment rolls.
From Monrovia to Whittier, many local cities and school districts have had to absorb pay cuts, layoffs and furloughs.
In the next couple of years, layoffs will slow, and hiring will begin revving up again as the housing market picks up and price levels adjust. Conditions are ripening for new residential construction and demand for exported goods is adding the potential for more job gains and business growth, UCLA economists said.
"The overarching message is that consumption growth will be much slower than normal," Shulman said.
At the core of shrinking demand are two types of consumers who are saving instead of spending, he added.
There's the one who can't spend, because he's unemployed and his credit cards are maxed out.
The other is the one who doesn't want to spend because his 401(k) has been decimated and his home's value is down between 20 and 50 percent, Shulman said.
Also in the UCLA report, economists debated the pros and cons of the government's $787 billion stimulus. The pros? Something had to be done to prop up the financial system. The cons? It came at the wrong time and was not targeted.
What was at least "timely, targeted and temporary," forecast Director Edward E. Leamer said in the report, was the government's Cash for Clunkers program, which gave consumers $3,500 and $4,500 credits for trading in their gas-guzzling cars for more fuel efficient ones.
It injected cash into the economy. But whether the program's success suggested a broader economic recovery was a question Fritz Hitchcock - owner of Industry-based Hitchcock Automotive Resources - had an immediate answer for.
Last weekend was the worst weekend in 10 years in the Los Angeles region for sales of Toyotas, Hitchcock said. The dismal numbers - 1,016 sales among 76 dealers - came after Toyota topped the list of vehicles that customers traded in their clunkers for.
A recession ending? Hitchcock was cautiously hopeful.
"I just don't agree with them," Hitchcock said of the belief that the recession could be over. "I believe the housing bubble hasn't even totally burst here in the state."