Chapman University held their annual Economic Forecast on June 16 where presenters James L. Doti, Ph.D., and Esmael Adibi, Ph.D. provided an overview of the state of the economy. Both shared the perspective that while the recession may be over, growth and recovery is a long, slow process that has just begun.
The presenters emphasized the significance of construction job losses and the housing market to the recovery. Said Dr. Doti, “If there is any risk to this recovery we are in, I believe the most serious threat is the worsening drop in housing prices.” Demand for houses has outpaced supply, causing upward pressure on house prices. Dr. Doti predicted that it will take three more years until the number of foreclosures returns from 4 million to the historic norm of 1.3 million.
What remains to be seen is the effect that the recession and housing market crash will have on consumer’s mindset during the recovery; these and other large scale events such as the disaster in Japan tend to decrease consumer confidence, causing unexpected delays in economic recovery.
In the hard-hit construction industry, the recession resulted in 40% of construction jobs being displaced. While these jobs may never return, sectors that will lead Orange County’s recovery include professional and business services, education and health services, and leisure and hospitality.
Reiterating OCBC’s call for structural government reform and a focus on job creation, Dr. Adibi shared that California had lost 900,000 people over the last five years to migration to other states. People left primarily due to jobs, home prices, and high taxes.
In terms of the state budget outlook, there has been a slight decline in state general fund spending, but mostly because the state has transferred responsibilities and spending down to the local level. The majority of government job losses have occurred locally, not at the state level. “If I were Governor,” said Dr. Adibi, “I would compromise on taxes, and make fundamental changes.” The most important change he recommended is to cap spending. For more information contact Dr. Wallace Walrod, Vice President of Economic Development and Research.