Citing disconnects in various economic indicators, the latest UCLA Anderson Forecast sticks with a no-recession theme but notes that the latest unemployment numbers — if they hold — "strongly favor the hypothesis that we are in recession."

Market analysts and economists have a wide range of opinions on the recession question, and former Federal Reserve Chairman Alan Greenspan said this month that the chance of a severe recession is diminishing.

Edward Leamer, director for the quarterly University of California, Los Angeles, forecast, states in his report, titled, "Muddied Waters," that the housing market’s drag on the nation’s gross domestic product may prove to be "the most severe since the Great Depression," though the bright side is that "history suggests this cannot go on much longer."

And while the unemployment rate rose from 5 percent in April to 5.5 percent in May, "One month … does not a trend make," Leamer states, and he holds out hope that this rate will be revised down over the next couple of months.

He states in the report, "In a recession, jobs are easy to lose but hard to find. This time jobs have been hard to find, but not easy to lose."

Leamer states that the forecast is built on a series of disconnects that are present in the economy, including a disconnect between the housing and labor markets and a disconnect between the construction and manufacturing cycles.

Employment growth has not declined in relation to the housing-market decline as it has in past recessions, Leamer noted, and construction jobs have "spiraled downward, even as the rest of the jobs continue to grow." Real estate finance-related jobs have also tumbled.

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"Although the 2007-08 credit crisis is far from over, the Federal Reserve appears to be shifting its attention away from rescuing the financial system to dealing with its more traditional concern of inflation," Shulman writes.

"The witch’s brew of the popping of the housing bubble, a wounded financial system, and increasing inflationary pressures coming from rising commodity prices will keep the economy on a subprime growth path for the next several quarters.

"If there is any good news here, it is that the economy thus far has avoided … falling into an outright recession." And with any luck, he adds, that "will be avoided."

A separate Anderson Forecast report focused on California, prepared by economist Jerry Nickelsburg, anticipates a "very weak" state economy this year, with the state’s unemployment rate expected to reach 6.1 percent by the end of the year and then to decline gradually.

"Though you still hear talk of recession these days, it does not appear that California will exhibit the kind of job loss that typically goes with a national recession," Nickelsburg states.

Anderson Forecast economist Ryan Ratcliff stated in a report on "The Three Phases of the California Real Estate Bust" that the first phase of the downturn began in 2004 with "inland regions that had built homes faster than the population had grown choked on a glut of new homes, which forced builders to cut prices dramatically in order to move product."

That gave way to an explosion of foreclosure activity. And this final phase will mark the recovery of the market. Next year, Ratcliff states, "will likely be devoted to picking up the pieces and discovering what houses are really worth in a market that isn’t dominated by foreclosures.

"We still have a long dark road ahead, but at least we can see a flicker of the light at the end of the tunnel."

***

What’s your opinion? Leave your comments below or send a letter to the editor.

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