UCLA Anderson Forecast Predicts Recover in 2010

From the San Francisco Chronicle Bleak forecast for California's economy

…There is no suggestion in the data that we are near that bottom," was the somber message of the UCLA Anderson Forecast, a quarterly look at the state economy conducted by the university's business school.

It was with some humility that UCLA economists issued this report, predicting high unemployment through 2010 as the state gradually recovers from the housing bubble.

In recent quarterly forecasts they had suggested the state might dodge the recession. But forecast Director Edward Leamer said the financial crisis that erupted in September and October had "unleashed a tidal wave of fear" that caused spending and investment to collapse, confounding all the forecast's expectations.

"When you do forecasting you look at historical trends and try to project how they might play out," Leamer said. "But nothing such as this has ever happened. Everybody is relying on hunches."

Now the forecast projects that California will continue in recession until the third quarter of 2009 when economic growth is expected to slowly resume and pick up steam throughout 2010.

The forecast projects that the statewide unemployment rate, currently 8.2 percent, could approach 9 percent next year and stay near that level for some time. Even after output and sales begin to recover late in 2009, the forecast does not anticipate the job market to rebound quickly.

So…their “hunch” is that things will pick up steam in 2010.

…Nevertheless, the forecast does not anticipate a bottomless slide. Instead it suggests that the California economy was thrown into a state of shock by the financial crisis that rocked the global banking system in the fall, sending consumers and businesses alike into a state of uncertainty.

"The reduction in uncertainty about the future course of the economy is a necessary condition for consumption to begin growing again," the report says. "The perception that 'The sky will not fall, Chicken Little,' is enough for this to happen rapidly."

Is this all psychological? Is it all about uncertainty? Is this massive debt just a part of my imagination? It sounds like these guys think so.