UCLA Anderson School of Management Blog

UCLA Anderson Forecast Partners with Cathay Bank on New Series of Reports Detailing U.S.-China Economic Relations

“China presents to the world an economic model that’s been fairly successful and has lifted millions and millions of people out of poverty. It’s a very different economic model than the U.S. economic model,” says UCLA Anderson Forecast Director Jerry Nickelsburg. “People are looking at both economic models and trying to understand what might be a good model for their country. Economists focus on two things: the role of economic incentives in human behavior and the allocation of scarce resources and these two models have different ways of doing that. It’s really interesting to see how these will play out and what the implications of these are.”

Going forward, Nickelsburg and his fellow economists with the UCLA Anderson Forecast will continue to explore these implications in depth, the result of a new partnership with Cathay Bank. With support from Cathay, the Forecast intends to produce an annual report on the economic relationships between the U.S. and China in addition to three quarterly updates.

Amid U.S.-China Trade Imbalances, Compromises Seem Likely

By Paul Feinberg

With daily headlines regarding U.S.-Sino trade relations as a backdrop, UCLA Anderson Forecast economist William Yu remains skeptical that the two nations will engage in a full-blown trade war, despite the public posturing of U.S. President Donald Trump and Chinese President Xi Jinping.

“Global trade imbalances cause trade tensions,” Yu said. “President Trump has been complaining about trade deficits for decades. President Xi has talked about China’s willingness to deal and that’s very good news.” His remarks kicked off the day’s first panel at Anderson’s 2018 Wilbur K. Woo Greater China Business Conference. Yu’s panel included moderator Seamus Jiang, managing director and co-leader for China-U.S. cross-border deals at PwC, and Feng An, founder and executive director of the Innovation Center for Energy and Transportation at U.S.-China Cleantech Center.

UCLA Anderson Forecast Sees “Regime Change”: Could the Economy Stall Out under Higher Inflation and Interest Rates?

Turbulence in the stock market. (BigCharts.com)

UCLA Anderson Forecast’s first quarterly report in 2018 sees a definitive change in the nation’s economy, which is moving from one of sluggish growth and low inflation to one of accelerating growth and moderate inflation. At the same time, with President Trump’s announced plans to increase tariffs on steel and aluminum, things could get worse, as domestic costs rise and foreign producers retaliate. Amid the changes forecast for the national outlook, California, still leading the nation in job growth, is expected to continue to outperform the U.S.

The National Forecast

The sudden 10% decline in stock prices and the rise in long-term interest rates in early February signaled what economists label a “regime change,” as the economic environment shifts from one of sluggish growth and low inflation to one of accelerating growth and moderate inflation. Concurrently, monetary policy is transitioning from one of accommodation to one of normalization, with four federal funds rate hikes in 2018; while fiscal policy moves from a moderate deficit to one with trillion-dollar deficits on the horizon. The $300 billion budget compromise during a two-year period, combined with the recently enacted $1.5 trillion tax cuts during a 10-year period, highlighted the demise of the so-called deficit hawks. The budget compromise also called for a substantial increase in defense spending, which ratified the Forecast’s long-held belief that the era of tightening in that sector is over.

UCLA Anderson Economic Forecast, from Low-Volatility Stocks to the Bitcoin Bubble

By Margaret Bliss and John Bugajski

The December 2017 UCLA Anderson Forecast took on a sobering if realistic tone when panelists addressed the financial market outlook for the United States. Guests Christopher Harvey (head of equity strategy at Wells Fargo Securities), Christopher Schwarz (associate professor of finance at UCI Paul Merage School of Business), Ivo Welch (J. Fred Weston Chair in Finance at UCLA Anderson) and Harlan B. Spinner (senior vice president of UBS Private Wealth Management) agreed that one should be wary when predicting the future growth of the GDP and where to invest.

When asked about the stock market’s current exuberance and its future growth, Schwarz disclosed, “The multiple is very high, a historic high. Is it irrational? It is difficult to say while we are sitting up here, but it is not an incredibly crazy number like it was in 1999 … Going forward I think mid-to-single-digit stock market growth is reasonable.” Schwarz anticipates a 5 to 6 percent GDP growth rate over a five-year span.

Retail: Survival of the Fittest

By DJ Busch

Retail as we know it is going through a dramatic shift, and the negative narrative is loud as ever. Consumer behavior is changing, retailers are trying desperately to compete and owners of retail real estate are working to ensure their properties are positioned for the future. But not all the news is bad. Some landlords should be positioned not just to survive, but to do quite well.

In the public market, mall REITs have been trading at large discounts to the underlying value of their assets for quite some time. This investor skepticism has spilled over to open-air shopping centers (strip centers), which are now also trading at discounts. While mall REITs own 80 percent of mall value in the U.S., these signals from the public market can have important, and often overlooked, implications for private market players. It’s no secret that the U.S. is over-retailed, and we have a substantial amount more square feet per capita than any other country.

UCLA Anderson Forecast: Could Dysfunction in Washington Spill Over to the U.S. Economy?

UCLA Anderson Forecast’s third quarterly report in 2017 anticipates modest growth in real GDP with gains in employment. On a national level, a number of pro-growth economic policies involving proposed tax cuts, investment in infrastructure and regulatory relief were expected to be initiated this year by the new administration in Washington, D.C., but few have transpired. Although there has been some progress on the regulatory front, challenges remain on a host of issues, including immigration, health care and trade policies. In California, the forecast is slightly lower, reflecting the administration’s difficulties in getting proposals passed.

On Wednesday, September 27, the UCLA Anderson Forecast examines the Death and Life of Retail in America, with a keynote by Gary Schoenfeld, former CEO of Pacific Sunwear and Vans Inc., and a panel of e-commerce experts. UCLA Anderson Forecast Economist William Yu examined the decline in employment in the retail industry across the country and found that despite continued economic expansion, employment in this sector declined by 29,000 in one year. What has been the second largest private-sector employer in the U.S. has now dropped to the fourth largest.

With an increase in online shopping and more stores using automated checkout in place of cashiers, Yu predicts retail might “become the next shrinking sector in terms of jobs over the next few decades.”

UCLA Anderson Forecast: Is a Recession in Sight?

UCLA Anderson Forecast anticipates continued modest growth in its second quarter report. Edward Leamer, UCLA Anderson Forecast director, took a deep dive in an accompanying essay into the state of the nation’s economy, offering advice about the three critical forecasting questions: (1) Is the risk of recession elevated? (Answer: No.) (2) Can President Donald Trump make America great again in the sense of getting GDP growth back up to 3% after seven years of 2%? (Answer: Not likely.) (3) Are inflation and interest rates likely to jump up soon? (Answer: That’s hard to say.)

In his essay “Three Things to Worry About,” Leamer indicates that the president and Congress need “to figure out how to get us back into the 3% corridor, or better yet, make America great again by turning the clock back to 1960 when the growth rate was 4.8%.” Those efforts are critical to keep and support programs such as Medicare and Social Security. “A more rapidly growing economy would produce greater tax revenues and would help a lot with the burden of taking care of our elderly.”

Although the country is currently experiencing its 32nd quarter of expansion, “This current expansion has had the mildest rate of growth of any U.S. expansion in the data set,” Leamer writes. A number of factors contribute to the slow rate of growth, including the decline in manufacturing jobs, a weaker auto sector, decline in the growth rate of the working population and in total hours worked, as well as a productivity growth rate of only 0.5% since the Great Depression.

Moving Forward: Can We Solve L.A.’s Housing Affordability Problem?

Photo: Owen CL, Unsplash.com

---

By Carolyn Gray Anderson

Last March, Los Angeles voters rejected proposed limits on the construction of large-scale buildings, limits that included a two-year moratorium on development of dense, high-rise residential properties. In a city where working-class and middle-income households are increasingly forced to prioritize housing costs over medical care, food and even transportation, it was a decisive defeat for ballot Measure S. But will augmenting the pace and quantity of available dwellings really make living here more affordable for anyone but the super rich?

The UCLA Ziman Center for Real Estate studies the problem of housing affordability as it reaches crisis levels in California. The constraints are especially acute locally because although there is an immense amount of wealth concentrated in L.A. and land values are extremely high, ours is a very expensive city with no real wage growth within the working class.

Ziman partners regularly with the nonprofit Mercy Housing to organize symposia on topics germane to professionals in real estate, government and industry — but with a crucial public education component consistent with the mission of Ziman’s Howard and Irene Levine Program in Housing and Social Responsibility to promote the kind of dialogue that improves society in all economic sectors. Mercy Housing is a national nonprofit organization that provides affordable housing and supportive programs in 41 states to improve the economic status of residents, revitalize neighborhoods and stabilize lives.

Left to right: Paul Ong, Ann Sewill, Doug Shoemaker, Ben Metcalf, Ben Besley, Kevin Ratner

UCLA Anderson Forecast’s Second Look at Economic Policy Changes under the New U.S. Presidential Administration

Stocks, the dollar and interest rates soared after the surprising election of Donald Trump on the assumption of a major shift in fiscal policy. Now that immigration and trade issues have moved to the fore, the markets are less certain as to the magnitude and timing of the fiscal changes. In its first quarterly report for 2017, the UCLA Anderson Forecast will discuss the implication of these cross currents and present a second pass at Trumponomics.

Key questions addressed at this quarter’s conference include:

• Can Trump deliver on his proposed tax cuts?
• How much will immigration and trade restrictions weigh on the economy?
• How many times will the Fed raise interest rates this year?

The national forecast

In his outlook for the national economy, UCLA Anderson Forecast Senior Economist David Shulman wrote that some of his current expectations are similar to those of last quarter, including the approximately $500 billion a year in personal and business tax reductions, a repatriation holiday for accumulated foreign earnings, increased defense and infrastructure spending, Medicaid cuts, relaxed regulations, modest changes to trade and immigration policies, and reductions in food and aircraft exports, as several trading partners react to the policy changes. The impact of a large tax cut on an economy at or very close to full employment will likely result in a short-term growth spike, but will quickly fade. The forecast calls for real GDP growth of 2.4 percent, 3 percent and 2.2 percent in 2017, 2018 and 2019, respectively, noting that real growth trails off on a quarterly basis in 2019, as higher interest rates weigh on the economy.

Though job growth appears robust with 170,000 jobs a month expected in 2017 and 2018, the figures will trail off to about 110,000 a month in 2019 and become even slower if the administration embarks on a large-scale deportation program of unauthorized immigrants. Concurrently, the unemployment rate could bottom out at 4.1 percent in late 2018, before gradually rising.

UCLA Anderson Forecast Looks at Economic Growth amid Presidential Elections

UCLA Anderson Forecast’s quarterly outlook for the national economy foresees real gross domestic product growth in the 2.0% to 2.5% range throughout 2017 and 2018, where it has been for the past seven years. With the economy approaching full employment, employment growth is expected to slow from what has been a consistent 200,000 jobs per month to about 150,000 per month in 2017 and 125,000 per month the following year. The national unemployment rate is predicted to be in the 4.8% to 5.0% range throughout the forecast period. In California, steady gains in employment are expected through 2018, while the unemployment rate in the state is expected to decrease during the next two years. California’s unemployment rate is expected to be insignificantly different from the U.S. rate at 5.4% by the end of the forecast period.

How Does the Economy Affect the Presidential Election?

This quarter, Forecast Economist William Yu takes a historical look at how “the economy” influences presidential elections. Yu’s research includes state data from 1968 through 2012 and led him to the following conclusions:

• The economic performance factor explains about 10% of variation of votes across states during this period. The non-economic performance factor explains 3.0% of variation.
• The demography factor explains 13% of variation of votes. The religion factor explains 3.0% of variation of votes.
• The state characteristic factor, which we assume remains constant for each state during this period, explains 51% of variation of votes across states.
• The rest (20%) is unexplained, which could be attributed to factors such as candidates’ individual qualities and campaign messages, and strategies compounded with other issues of voter concern in each election cycle.