The nation's tepid economic recovery should gather some momentum by next year but it will be held back by California and the Northeast, says the UCLA Business Forecasting Project.
"Until these big economies join in the recovery - which, at least for California, we do not envision until next year - the potential for expansion in the national economy remains limited," said David Hensley, director of the forecast.Hensley said he is expecting the economy, as measured by gross domestic product, to expand at a rate of 1.8 percent this year due to the first quarter's growth rate of 2.4 percent being stronger than expected. The economy will then post a 3.3 percent growth rate next year.
Hensley said the economic recovery has been "ragged," and cited signs of weakness in housing, faltering consumer spending in March and April and lackluster job growth.
Additionally, California and the Northeast represent nearly 40 percent of the nation's ecomomic activity on the basis of personal income. "My assmuption is that those two regions are not growing, so the rest of the U.S. has to grow by 5 percent for us to get a 3 percent growth rate," Hensley said.
"For people who are arguing that we're going to get 5 percent growth, it means that the rest of the country would have to grow at 10 percent and I don't think that's plausible," he said.
Hensley said the economy is not likely to repeat its strong emergence from the 1981-82 recession.
"The picture that emerges is one of an economy that is inching forward, held back by declines in key sectors such as business investment in structures and government spending," he said.
"We expect this patchwork pattern of growth to continue through the remainder of this year, supporting our forecast that the economy cannot sustain more than 2 to 3 percent growth until 1993," Hensley said.
The economist also said the economic expansion will be held back by consumers not spending at expected levels, and an end to the era of exports expansion due to problems with the German and Japanese economies.
Consumers, Hensley said, appear to be trying to cut debt loads. "Paying down debt is very favorable for the long term, both for businesses and consumers," he said. "Purchasing plans remain very cautious, with those surveyed expressing reluctance to purchase either homes or automobiles."
Hensley stressed the economy is in far better shape than it was a year ago.
"One of big differences between this year and last year is that the economy has enough momentum to carry itself along," he said.